Slower - but steady - market in 2008, CML forecasts

House price inflation is likely to remain positive, property transactions are set to remain above one million, interest rates are set to fall by three-quarters of one per cent, and gross lending will decline but is still set to exceed 2005 levels, according to the 2008 housing market forecasts published today by the Council of Mortgage Lenders.

In an environment where much of the recent comment and analysis has focused on the credit crunch and its negative impacts, the CML emphasises that publishing forecasts is an even more uncertain process than usual.  As a result, the CML is at present only issuing forecasts to the end of 2008, but plans to issue forecasts for 2009 in the first quarter of next year. 

The effect of the credit crunch has been to exacerbate trends that were already emerging in terms of a slowdown in the house purchase market.  With the effect of the interest rate rises since summer 2006, and the effect of the estimated 1.4 million households whose short-term fixed rate deals are due to expire in 2008, the CML was already expecting arrears and possessions to rise.  But this trend will be more pronounced than previously expected because of the funding constraints and tightening of lending criteria, resulting in reduced remortgaging opportunities across the lending spectrum but particularly for borrowers in the adverse credit (sub-prime) sector.

In summary, the CML is forecasting –

• House prices to rise 7% in 2007 as a whole, and 1% in 2008.
• Property sales to total 1.17 million in 2007 and 1.01 million in 2008
• Gross lending to reach £360 billion in 2007 and £340 billion in 2008
• Net lending to total £105 billion in 2007 and £90 billion in 2008
• The number of 3+ months arrears cases to reach 145,000 (1.22% of all mortgages) by the end of 2007 and 170,000 (1.42% of all mortgages) by the end of 2008
• The number of repossessions to total 30,000 (0.25% of all mortgages) in 2007, and 45,000 (0.38% of all mortgages) in 2008
• Base rates to end the year at 5.5% in 2007 and 5.0% in 2008.

CML Director General Michael Coogan commented:

“The housing and mortgage markets are facing their most challenging period since Labour came to power a decade ago. Luckily, the credit crunch occurred at a time when the UK economy was robust, but even so the effects on the financial sector are significant, and the mortgage market is not immune from them.

“We now expect a slower mortgage market next year, although by no means a stagnant one.  Most borrowers will cope, but not everyone will escape unharmed from the effects of a slower market, so the government should make it a policy priority to overhaul the system of state support for home-owners, which has lagged pitifully behind the times."