CML news & views

Remortgaging will be an important source of business for lenders this year, with the credit crunch having its greatest impact on restricted lending for house purchase.

Last month, when we published our revised forecasts for mortgage and housing markets for the rest of this year, we predicted that the number of loans for remortgaging in 2008 would be about 2% higher than last year. This will be partly driven by the fact that the number and value of fixed-rate products maturing this year is significantly higher than in 2007 and will provide a strong level of underlying demand.

However, the reduced availability of funding has led to a tightening of lending criteria, meaning that for some borrowers remortgaging is either unavailable or not as attractive as in the past. Borrowers with past payment problems or those seeking to borrow large amounts relative to the value of the property are most likely to be affected.

Our revised forecasts for the rest of this year now anticipate that:

• house prices will be around 7% lower at the end of this year than they were at the end of 2007;
• property transactions in England and Wales will be around 35% lower, at 770,000;
• gross lending will be around 21% lower, at £285 billion;
• net lending will total half last year’s amount, at £55 billion; and
• the Bank of England base rate will end the year at 4.75%.

Although our forecasts now anticipate a more pronounced slowdown in the market this year, our predictions for arrears and possessions remain unchanged. Many borrowers are experiencing lower borrowing costs because the Bank base rate is lower than we had expected. Those coming off fixed rates also appear to be managing well as they adjust to market conditions.

The credit crunch means that 2008 is destined to be a weak year in the housing market. However, our forecast assumes some indirect benefits from the Bank of England’s special liquidity scheme will begin to have an effect on the mortgage market later in the year.