Mortgage market forecast to shrink

Sarah Davidson

August 12, 2010

The Council of Mortgage Lenders downgraded its estimate for gross lending this year by £10 billion to £140 billion for the year as well as lowering its net lending estimates to £12 billion from £15 billion.

The trade body believes housing transactions will reach 900,000 by the end of December.

It has also amended its expectations for arrears and possessions, lowering expected arrears of 2.5% or more of outstanding balance at end period from 205,000 to 175,000.

It says possessions are likely to be lower than it previously thought at 39,000 for the year, down from the CML’s November 2009 estimate of 53,000.

A statement from the CML said: “In the next few months, we expect a continuation of the recent picture of relatively modest lending levels, with less of a pick up in the second half of the year than we previously thought. As a result, overall, we expect both gross and net lending levels to be at or below 2009 levels.

“This reflects stability but at well below what might be expected to be a normal level of market activity of around £250 billion (itself well below 2006/2007 when lending levels were uniquely high).

“At the same time, and more positively, historically low interest rates and the labour market having held up better than expected so far have continued to help many households cope.

“This has kept mortgage problems lower than we expected, with more people with short term financial difficulties being able to get back on their feet. This means that both arrears and possessions levels are expected to be materially below 2009 levels at the end of the year, rather than above as previously forecast.

“But there is no room for complacency as arrears levels are not improving for a group of consumers who have been given extended forbearance by lenders.

“We expect financial pressures to remain elevated for some considerable time. Arrears management is still intensive, and the prognosis is uncertain for possession trends. We hope the coalition government will not reverse the welcome trend this year by removing support mechanisms that work for consumers.”

Sign up to our daily email