UK mortgage lending set to decline by ten per cent as house prices stall

07 April 2005
The independent market analyst Datamonitor is predicting a ten per cent decline for the housing market over the next three years as house prices stall.

Datamonitor believes that UK mortgage lending, worth £292 billion in 2004, will fall to £264 billion by 2007 as it adjusts to the slowing housing market.

As transactions fall, the analyst sees loans for house purchase declining by 15 per cent to £117 billion from 2004's figure of £138 million, and predicts a six per cent drop for remortgaging, bringing its value to £115 billion.

"Lenders will need to devise cost effective strategies in the light of increasingly wafer thin margins and inject a more innovative approach in order to secure a share of the market," warned Edward Ripley, financial services analyst at Datamonitor and author of the report.

The increasingly frequent practice of mortgage switching, where mortgage holders continually change lenders to take advantage of cheap initial offers, will also take its toll on the mortgage industry, the report finds.

The decline could spell good news for homebuyers, however, as mortgage lenders reduce premiums and offer more incentives to compete for business.

"[Mortgage lenders] will have to prove their worth through negotiation and perhaps reduced margins in order to protect their market share and gain access to the right panels," Mr Ripley comments.

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