CML predicts flat year for housing and mortgages in 2011

It also said it does not envisage a return to the lending levels that characterised the middle of the last decade for many years to come.

Its forecasts are based on the prevailing consensus among economists that the UK will avoid a “double dip” recession, but that economic activity next year will be uneven.

Next year, the CML expects the number of residential property transactions to total 860,000, that is very similar to the levels of the three previous years.

It believes the £250,000 stamp duty exemption for first-time buyers, which is scheduled to come to an end in December next year, is likely to give a modest boost to sales as 2011 progresses and particularly as the deadline gets nearer. But the effect of this is more likely to bring forward transactions, rather than stimulate any significant new housing market activity.

The CML expects remortgaging to remain subdued. First-time buyers will continue to find it difficult to get into the market. There is a crumb of consolation for them in that house prices are unlikely to rise significantly. However, while recent house price weakness may persist for some months, the CML does not foresee any sharp fall in prices.

Uncertainty about the availability and cost of mortgage funding will remain. The big issue for lenders next year will be to re-finance existing wholesale borrowing and begin to pay back the very large amounts of funding advanced through official support schemes. However, the prospects of them being able to do this without adversely affecting the market have improved.

With funding in short supply, the availability of mortgages for first-time buyers will remain limited. Lenders are likely to continue to have only a modest appetite for advancing mortgages at higher loan-to-value ratios.

These trends are being further reinforced by the uncertainty surrounding the FSA’s mortgage market review. Existing proposals, if implemented, would exclude many potential borrowers from the market, restrict remortgaging options for many existing borrowers, and remove altogether some types of product from the market. Although the FSA says it is still consulting, uncertainty about the final rules will continue to reinforce the cautious approach being taken by lenders.

The good news is that the CML does not foresee a significant change in the number of borrowers falling behind with their mortgages over the next 12 months. It predicts a modest increase in arrears and possessions next year, reflecting the continuing pressure on household finances, the persistence of cases of long-term arrears and the government’s decision to cut help for borrowers by cutting payments of support for mortgage interest.