The mortgage market could see lending cut by half over the next year, according to Steven Crawshaw, chairman of the Council of Mortgage Lenders (CML).
The "envy of the world" just 12 months ago, the UK's "successful, vibrant, innovative and competitive" mortgage
market's lending book could shrink to half its size this year, Mr Crawshaw said at the CML's annual lunch last week.
Now facing a very different global market as the liquidity shortage continues, Mr Crawshaw spoke of the shock he felt as "our successful industry" was hit by "unprecedented funding market conditions", which have contributed to such events as the run on Northern Rock and the declining property market, and he calls on the Bank of England to inject further liquidity to prevent it from spiraling further.
In October, the CML predicted that the property lending sector would see a year-on-year slow down of about 15 per cent, with consumer demand falling from £108 billion in 2007 to £90 billion this year.
However, in light of the growing funding gap between the supply and expected demand of home loans, and the fact that the mortgage market continues to be predominantly funded by retail savings since liquidity dried up last summer, the demand is expected to be much slower than forecast, making it a "real possibility" than "net lending in 2008 could reach only half last year’s level unless additional funds become available".
Despite this, Mr Crawshaw draws optimism from the ability of lenders to deliver mortgages to as many people as possible within the current lending conditions, and commended those which are raising substantial retail deposits, which is an advantage while other sources of funding "remain constrained". He added that the CML continues to tackle the problems facing existing homeowners who could find themselves stretched in today's financial climate.
In conclusion, Mr Crawshaw asked that the Financial Services Authority regulate the banking industry in "a proportionate and focussed way". He asked for improvement in the regulation of the sector, which does on occasion, he said, "feel frustrated that FSA communications seem more alarming than reassuring in tone, failing in what is today the crucial role of helping market confidence."
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