They are only "threatening" to scare you to do something drastic to get their money.
Before you panic, contact the citizens advice bureau (go and see them in your town, every city has one, or google to find their website). They will sort everything out for you and arrange a plan on your behalf, including freezing the interest - their service is free, you won't get charged for anything, they are a genuine charity. And no you won't lose your home, it's just a scare tactic and some of these characters were fined by the FSA last year for making false threats, so what they are doing isn't on. I'd like to give a great explanation why, but it keeps getting caught in the spam filters. Just go read the citizens advice website, or cccs website. There is a whole host of stuff about your rights under UK law. Don't let them scare you.