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Mortgage lending rises but 2012 likely to be challenging

Publishing its housing and mortgage market forecast update, the CML confirmed that it now expects gross lending in 2011 to total £138 billion, with net lending of £9 billion. For 2012, the CML’s new central forecast is for £133 billion of gross lending and £5 billion of net lending, representing the weaker economic backdrop that now seems likely. However, with so much economic uncertainty at present, this is subject to considerable variation in either direction.

The CML continues to expect the bulk of the negative effects in the housing market of wider economic uncertainty to manifest through a continuing low level of housing transactions. While an estimated 852,000 transactions are likely to have taken place in 2011, the CML anticipates fewer transactions next year with a central forecast of 825,000.

In terms of mortgage repayment difficulties, the CML expects the increasing pressures on the household sector to unwind some of the improvements in mortgage arrears and repossessions experienced over the past two years. The central forecast is for 45,000 repossessions next year, up from an estimated 37,000 this year but still fewer than the 2009 figure, and far lower than in the downturn of the 1990s.

In the full forecast, CML chief economist Bob Pannell observes:

"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."

Nicholas Leeming, business development director of Zoopla.co.uk, said:

“Despite the uncertain economic backdrop there is no denying that lenders have improved mortgage availability in 2011 and with the government scheme to facilitate 95% lending to first-time buyers on new-build properties this is likely to continue into next year. The difficulties many face in trying to raise a deposit will remain, but for those able to muster enough cash to secure funding there will be good opportunities to buy in the market next year. Inflation is beginning to fall so there will be less pressure on the Bank of England to boost interest rates and this will help keep mortgage rates low and affordable.”

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