CML slashes gross lending forecasts

Yuan Phoon

December 15, 2011

In June the CML upgraded its 2011 forecast from £135bn to £140bn and predicted £150bn of lending in 2012.

It cited the weaker economic backdrop as the cause for the downgrade. The CML said this would cause continuing low levels of housing transactions with an estimated 852,000 transactions likely to take place in 2011. Its central forecast for transactions in 2012 is now lower at 825,000.

The CML said it also expects the increased pressures on the household sector to unwind with improvements in mortgage arrears and repossessions experienced over the past two years.

The CML’s central forecast is for 45,000 repossessions next year, up from an estimated 37,000 this year but still fewer than the 2009 figure.

Bob Pannell, chief economist at the CML, said: “The weak state of the wider economy and household finances creates a challenging and highly uncertain backdrop for the housing and mortgage markets.

“Despite the fact that activity levels have already been subdued for several years, we have pencilled in a broadly flat picture, for both mortgage lending and property transactions, at least until real incomes show signs of stabilising as inflationary pressures recede.

“As a by-product of sovereign debt worries lenders face challenging conditions in wholesale funding markets and these could have negative effects on the cost and availability of UK residential mortgages through some or all of next year.

“But, if European leaders navigate a comprehensive and sustainable way through eurozone problems, current financial market stresses could heal and the previous pattern of gradual improvement in cost and availability of funds re-emerge relatively quickly.

“This in turn could have a major benefit on UK growth prospects and boost household confidence and appetite to borrow.”

Commenting on the forecast, Richard Sexton, director of e.surv chartered surveyors, said: “While the gross mortgage lending figure for November is pretty stellar, the future does not look so bright.

“The recent international economic turmoil has landed a series of heavy blows to the mortgage market – blows that will leave it still feeling groggy in the New Year.

“The best we can hope for is for lending to slide only marginally in 2012 – predictions of a flat market now look optimistic.

“There certainly won’t be a great deal of scope for banks to increase their loan books. The rate at which banks lend to each other – LIBOR – is creeping ominously upwards to 1.05%, and they will look to pass these costs onto consumers, which means mortgages rates will rise and high-loan-to-value lending will fall.

“The small gains for first-time buyers we’ve seen throughout the summer look certain to be reversed. Banks are running for cover and scratching around for capital. We’re seeing them focus more on lending to buy-to-let investors – which they see as lower risk – who are accounting for an increasingly large percentage of new loans.”

Commenting on the latest CML figures and forecast for 2012, David Whittaker, managing director of Mortgages for Business, said: “Recent improved lending figures are due to lenders needing to hit targets before the end of the year rather than a significant improvement in the residential housing market, so anyone hailing this as a new dawn is as misguided as the chap who suggested a single European currency was a sensible long-term venture.

“As the CML suggests, the economic backdrop will keep residential activity subdued in 2012 which means the private rental sector will continue to grow in importance. But it’s not simply a question of lenders throwing a few vanilla BTL products into the mix. If we’re to avoid a total housing crisis, investors need to be able to secure finance on more complex investments such as multi-unit freehold blocks and houses of multiple occupancy. If the owner-occupier sector is going nowhere in 2012 then it’s vital more is done to meet rental demand.”

Paul Hunt, managing director of Phoebus Software, is a bit more positive. “We haven’t seen four consecutive months of annual growth in gross lending since the end of 2007 and the fact that this strengthening has occurred against an increasingly stormy backdrop in the eurozone is a sign of remarkable confidence among UK lenders.

“Of course, the rising cost of wholesale lending, along with persistent inflationary pressure on salaries will pose big challenges to the industry in 2012. But rather than running for the hills, lenders have shown they are prepared to take advantage of the Bank’s commitment to a dovish monetary course, offering record-breaking low rates and boosting gross lending by 13% in the year.

“It’s right to point out that 2012 may not bring a fair wind to the market, but the industry can take heart that lenders have shown in 2011 they are not easily spooked.”

Sign up to our daily email