Lending to Remain Flat Throughout 2011

by Mark Johnston

A new report out by the Council of Mortgage Lenders (CML), the mortgage industry’s trade body has suggested that net lending will continue to fall and in 2011 be around half of what is was two years ago.

The report suggested that the overall net lending in 2011 will be in the region of £6 billion which is a massive drop from the £9 billion they originally predicted for 2010 and the £12 billion they predicted for last year (2009).

They believe that gross mortgage lending next year will be £135 billion which is about the same as this years gross figures. Although the figures seem fairly healthy its worth comparing them to previous years, in 2009 gross lending was £143 billion whilst 2008 was £253 billion and 2007 hit a peak of a massive £363 billion.

Some people in the industry and wider economic commentators are worried that the UK will suffer a double dip recession as people struggle with government cuts and the rise in VAT. Luckily the Council of Mortgage Lenders don’t share this belief and have predicted that the UK economy will grow at around 2% next year. They are also part of a growing number of people who are speaking out on the need to sustain the base rate at 0.5% for the majority of 2011.

They hope that the continued low interest rates will provide UK homeowners with the help they need to meet their mortgage repayments in these difficult times. The CML hope that this will help the industry avoid the mortgage arrears and home repossessions that they have managed to avoid so far even though experts predicted much worse figures. That said, some forecasts are showing an increase of up to 3% next year even if rates remain low. If the Bank of England decides to increase them rapidly then the figure is set to be much higher.

A recent report showed that around 345,000 borrowers are falling behind with mortgage payments and have some sort of loan arrears. The concern is that if this number rises and more start top default, it could create another financial crisis as banks would struggle to withstand more losses on their balance sheets.

Of the 345,000 borrowers in arrears, less than ten percent have agreed a way forward with their lender which is making the industry very nervous as this is what brought leading banks and building societies to their knees just a few years ago.

Property sales hit around 1.6 million at their peak and have fallen away in recent years. 2010 will hit around the 900,000 mark and if forecasts are to be believed then 2011 figures will fall 30 to 40,000. The industry is also concerned about the availability of credit as many lenders took advantage of government support which needs to be paid back at the start of next year. The other big factor in the amount of lending which will go on next year is the result of the FSA’s mortgage market review. It’s not certain at the moment what changes will come out of the review but many lenders are concerned about the effects that this will have on the industry. Rest assured, whatever the changes, the result will most likely be tighter lending criteria’s which will result in fewer loans on the market.

Story link - Lending to Remain Flat Throughout 2011

Related stories to : Lending to Remain Flat Throughout 2011