CML Cuts Back Its Mortgage Forecast

The forecast for house price movements through 2008 have been cut by mortgage lenders from a 1% increase to a 7% decrease.

The Council of Mortgage Lenders has revised its forecast downward after recent stagnation in the mortgage market, and it expects a 35% drop in sales during the year. The group, representing banks and building societies throughout the UK, has made a significant modification to its previous forecast, which was made in October 2007.

Another change to the forecast has been to the number of transactions the CML expects. Where it had thought that the number would be the same as in 2007 – one million – it is now saying that it expects there to be only 770,000 property transactions.

The current low level of mortgage activity is a result of weak buyer affordability and tight lending conditions.

April saw a drop of 8% in mortgage figures compared with the same month in 2007, with £25.3bn in transactions, but was higher than March which was probably due to the early Easter. Combined figures for March and April were down by 16% on the previous year.

Mortgage lenders have cut the number of products available on the market, and made lending tougher, with higher deposits required, and arrangement fees also on the increase.

The Bank of England has cut the base rate three times since December 2007, and has made more money available to lenders, but none of these moves has had a significant beneficial impact on the cost of mortgages.

Although the forecasts for the mortgage market in 2008 are now not very optimistic, it is to be hoped that the banks can use the period to settle down their own finances, and regain confidence in each other so that they can eventually ensure that arrears and repossessions are kept to a minimum and that borrowers coming off fixed rates remain on track. Another CML forecast is for the bank rate to come down to 4.75% by the end of the year.