CML predicts 7% drop in house prices amid weak mortgage market

22 May 2008 / by Joy Tibbs
The Council of Mortgage Lenders (CML) is anticipating a poor year for the housing market, expecting house prices to be seven per cent lower at the end of 2008 than they were at the end of 2007.

Although gross mortgage lending was up five per cent to an estimated £25.3billion in April compared with March figures, lending was down eight per cent compared with April 2007.

Lending is normally lower in April than in March, but the CML believes having Easter in March this year affected the figures. Combined mortgage lending for March and April was 16 per cent lower than in the corresponding period last year.

Its forecasts for activity in the housing market have also been updated, revealing that property transactions in England and Wales are likely to be approximately 35 per cent lower than last year, at 770,000. Gross lending is expected to be around 21 per cent lower than last year at £285billion and net lending is likely to be £55 billion, half last year's level.

The CML believes the Bank of England base rate will have fallen to 4.75 per cent at the end of the year. It also claims that many borrowers are now experiencing lower mortgage rates, and that those coming off fixed-rate deals onto higher rates appear to be managing the adjustment well. As a result, its arrears and repossessions outlook is unchanged.

CML director general, Michael Coogan, said: "In the wake of the credit crunch, 2008 will be remembered as a very weak year in the housing market. But our 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.

"Over the next few months, lending volumes will get worse before they get better. The market is still very uncertain, but lenders are 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."

Meanwhile, the Association of Mortgage Intermediaries (AMI) claims getting independent mortgage advice from a mortgage intermediary could save consumers £1,830 per year compared with those buying directly from the lender.

Director general of the AMI, Chris Cummings, said: "Intermediaries are able to identify the most suitable product for the consumer at a competitive price. Analysis of consumer attitudes shows they value this advice much higher than that provided by lenders.

"Consumers can choose to shop around themselves rather than use an intermediary. However, research shows that half of consumers who purchased a mortgage on a direct basis did so from their own bank or building society without considering any other option. A further 39 per cent contacted no more than three lenders. This significantly reduces the likelihood of finding the most competitive mortgage for the individual's own circumstances."

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