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Economy

Property sales forecast to drop by 35%

Wednesday, 21 May 2008

Gross mortgage lending reached an estimated £25.3 billion in April, an 8% drop on April 2007.

The figures, released by the Council of Mortgage Lenders (CML) represent a 5 per cent drop compared to March 2008.

A fall is typically expected from March to April. The fact that Easter was in March is, however, likely to have affected the monthly profile this year. For March and April combined, lending was down 16 per cent from 2007 levels.

House prices to fall by 7 per cent

The CML also published its updated housing market forecasts for the rest of 2008. The organisation now expects house prices to be around 7 per cent lower at the end of the year than at the end of 2007.

Property transactions in England and Wales are expected to be around 35 per cent lower than last year at 770,000.

The CML predicts that gross lending will be around 21 per cent lower than last year at £285 billion and net lending to be half last year’s level at £55 billion. Bank base rate are forecast to end the year at 4.75 per cent.

The CML’s detailed forecast, while clearly anticipating a sharp slowdown this year, does hold some crumbs of comfort.

With many borrowers now experiencing lower rates, and with those coming off fixed rates on to higher rates so far appearing to manage the adjustment well, the CML’s outlook for mortgage arrears and repossessions remains unchanged.

Lending volumes

CML director general Michael Coogan said that 2008 would be remembered as a very weak year in the housing market, in the wake of the credit crunch.

The CML’s forecasts assume some indirect benefits from the Bank of England special liquidity scheme beginning to have an effect in the mortgage market in the later part of the year.

Coogan warned that lending volumes will get worse before they get better over the next few months.

He said that the market was still very uncertain, but added that lenders were working hard to ensure that borrowers coming off fixed rates remain on track, that arrears and repossessions are minimised, and that pricing is as attractive as they can make it in a market where they must manage the demand for lending with caution.

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