CML Report on updated Mortgage and Housing Market Forecasts

publication date: Jul 29, 2011
 | 
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books
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CML Report on updated Mortgage and Housing Market Forecasts


The Housing Market in the UK


The Council of Mortgage Lenders produce regular reports on what they think will happen in the mortgage and housing market over the next 12-18 months. This latest report suggests a continuing of the current ‘depressed' housing market with little change in lending activity or practices nor in the number of properties being bought and sold.

Year            Estimated Number of
Residential Property Transactions (UK) 
Number of Repossessions
2008901,000                                                                 40,000
2009859,00047,700
2010886,00036,000
2011840,000E40,000
2012900,000E45,000

Two of the key premises which CML's forecasts rest on are a slow rise in interest rates away from 0.5%, which they expect will start in 2012, indicating no interest rate rises for the rest of 2011, which is excellent news for homeowners and particularly landlords on great pre-credit crunch deals which were just points above base.

From a mortgage perspective, the buy to let market (BTL) has probably come out best over the last few years. Despite initial fears, lenders are realising BTL landlords are a pretty savy financial bunch. Apart from a small number of amateur investors who bought late into the market (2006-7), most have good gearing of 50% or less so are able to re-mortgage on the best BTL deals and the increase in the number of tenants competing for properties has steadied a previous small fall in rents from 2008. In areas such as London which tend to lead the rest of the UK, some tenants are having to pay 15% more to rent a property, causing many to ‘trade down' from two to one bedrooms to save cash.

If you are buying, selling or re-mortgaging though, the lending environment isn't changing much and is still very tight. The best rates are at loan to values of 40% or less, so anyone trying to borrow based on 5-25% deposits will still find it tough to secure funds and find it virtually impossible to get a ‘decent' low rate, despite interest rates being at 0.5%.

Even if lenders wanted to improve the current loan to value offering, Financial Services Authority rules and the requirement for lenders to re-finance "large amounts of existing wholesale borrowing and repaying much of the funding advanced" by government backed schemes will hold them back and severely limit lending over the next few years.

Due to these issues, CML do not see expect to see lenders changing their practices much and with only parts of London seeing house prices recover, and other areas watching them slide again, it's unlikely buyers will come back in a hurry.

The question therefore is whether CML think this may cause sharp falls in house prices. For this to occur, it is likely that people need to be ‘forced' to sell, in other words repossessions to rise sharply. In the last housing recession in the 1990s, repossessions ran to nearly 100,000 homes a year. Thanks to the quick drop in interest rates this situation has been avoided and repossessions have been relatively stable during the recession at around 40,000.

With the government making it clear lenders need to do what they can to keep people in their homes and interest rates being kept at 0.5% for some time to come, CML can't see why there would be a ‘sharp fall' in prices. However it is worth noting that the 40,000 repossessions comes from around 180,000 arrears cases a year. Many manage to sort out a payment plan, but if numbers were to increase for any reason (another economic shock for example or problems with lenders' securing funding) a rapid rise in these numbers reaching actual repossession, then property prices in heavily affected areas with a poor economy could well fall sharply.

CML are also warning that lenders are right to try to keep people in their homes with re-financing deals, but should not do so if they are storing up problems later on for people whose circumstances have changed so much they are likely to be repossessed in the future.

Overall, CML expects the market to continue to be stable from both a mortgage lending and house price perspective in the future.

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