Conceding that it will be slower going, the CML has said that house price inflation is likely to remain positive, property transactions are set to remain above one million and interest rates are set to fall by three-quarters of one per cent - although gross lending will decline.
In an environment where much of the recent comment and analysis has focused on the credit crunch and its negative impacts, the CML emphasises that publishing forecasts is an even more uncertain process than usual.
As a result, the CML is at present only issuing forecasts to the end of 2008, but plans to issue forecasts for 2009 in the first quarter of next year.
The effect of the credit crunch has been to exacerbate trends that were already emerging in terms of a slowdown in the house purchase market. With the effect of the interest rate rises since summer 2006, and the effect of the estimated 1.4 million households whose short-term fixed rate deals are due to expire in 2008, the CML was already expecting arrears and possessions to rise. But this trend will be worse than previously expected because of the funding constraints and tightening of lending criteria, resulting in reduced remortgaging opportunities across the lending spectrum but particularly for borrowers in the non-conforming sector.
The CML is forecasting:
- House prices to rise 7 per cent in 2007 as a whole, and 1 per cent in 2008.
- Property sales to total 1.17 million in 2007 and 1.01 million in 2008
- Gross lending to reach £360 billion in 2007 and £340 billion in 2008
- Net lending to total £105 billion in 2007 and £90 billion in 2008
- The number of 3+ months arrears cases to reach 145,000 (1.22 per cent of all mortgages) by the end of 2007 and 170,000 (1.42 per cent of all mortgages) by the end of 2008
- The number of repossessions to total 30,000 (0.25 per cent of all mortgages) in 2007, and 45,000 (0.38 per cent of all mortgages) in 2008
- Base rates to end the year at 5.5 per cent in 2007 and 5.0 per cent in 2008.
"We now expect a slower mortgage market next year, although by no means a stagnant one. Most borrowers will cope, but not everyone will escape unharmed from the effects of a slower market, so the government should make it a policy priority to overhaul the system of state support for home-owners, which has lagged pitifully behind the times."
Stuart Law, chief executive, Assetz, believes the CML is being overly cautious in its predictions: “With an anticipated period of lower interest rates and the credit crunch now receding, I would predict a more realistic house price increase of 5 per cent in 2008, given the continuing supply/demand imbalance.
“While I would agree with the CML that sales volumes are likely to fall next year, I do not expect this to have a significant impact on price. With fewer sellers than buyers expected in the market, this will in fact support prices, keeping them buoyant.
“An increase in repossessions sadly appears to be inevitable given that the poor-credit mortgage marketplace has tightened radically and is unlikely to recover well after the credit crunch. However, next year is likely to see an increase in the demand for rental accommodation. Rents are already rising strongly - 10 per cent this year with the same expected in 2008, a sentiment which appears to be supported by both RICS and ARLA.
“With demand strong and investors able to secure some excellent new property deals, 2008 looks to be a prosperous year for the buy-to-let investor.”
