If you need to do resits at the end of your second year then this does not automatically mean that you can't progress to year 3 of the MPhys; however, resit module marks are capped at 40% so this will inevitably bring your average Level 2 mark down and will therefore increase the chances that your average mark is below the MPhys threshold for progression.  The MPhys progression threshold applies to your average Level 2 module mark - it is not necessary to score a mark in excess of the threshold in each module.