The government has announced plans to close a legal loophole that allowed lenders to repossess people's homes without going to court.

The decision follows a campaign by charities which began after a judge ruled in favour of the lender GMAC-RFC in a repossession case last year.

The loophole left homeowners who had missed two repayments vulnerable to immediate repossession.

The move prevents "rogue lenders" using the loophole, the government said.

The decision from the Ministry of Justice follows an eight-week consultation.

Prevention

The problem became apparent last year, when GMAC-RFC repossessed a property after the borrower got into arrears.

The borrower was living in the property, despite this being against the terms of the buy-to-let mortgage, and was evicted by the new owner on the grounds of trespassing, even though GMAC-RFC had never gone to court to get a repossession order.

The borrower claimed that the repossession was a violation of human rights, but this was rejected by a judge.

However, in October 2009 GMAC-RFC was fined £2.8m by the Financial Services Authority (FSA) for mistreating customers who fell into arrears.

The FSA said the company levied unfair charges on borrowers who fell behind with their repayments and was too eager to repossess their properties.

"Under the existing law, lenders have the right to repossess and sell a property without seeking either the agreement of the owner, or of the Courts," Justice Minister Bridget Prentice said.

"While there is no evidence that owner-occupiers are being treated in this way, the government proposals published today would close this loophole and prevent any future instances of 'rogue lenders' behaving this way."

The government also said that more than 33,000 people in England had been helped in the year to the end of September 2009 by a scheme under which homeowners facing repossession hearings at courts are given free advice.

It added that about 76% of those people were able to return home immediately following the hearing.