Mortgage lending to dry up in 2009

Wonky barn

Mortgage lending is expected to turn negative next year as more people repay their housing debt than look to borrow more.

The market forecast for 2009 from mortgage lenders predicts there will be just 700,000 housing transactions, down from 900,000 in 2008 and 1.6 million in 2007. As a result, they expect to issue very few new home loans and, with more people repaying existing debt, lending could turn negative to the tune of £25 billion.

At the same time, the number of people struggling to meet their mortgage debt is also forecast to increase, with 500,000 homes expected to be more than three months in arrears by the end of next year.

The Council of Mortgage Lenders (CML), which has made the forecast, says lending in November this year was just £14.6 billion, down 22% from October and 51% down from November last year.

Michael Coogan, director general of the CML, says: “In looking ahead to the coming year, the housing market will remain extremely subdued and net mortgage lending is likely to turn negative.

“Repayment problems will worsen against the backdrop of rising unemployment but lenders and the government are working to try to reduce the negative impact on borrowers.”

The gloomy forecast has provoked a strong response from other areas of the industry, with experts warning consumers are in for a tough time if 2009 really is as dire as the CML predicts.

Robert Sinclair, director of trade body the Association of Mortgage Intermediaries, says: “We are surprised by the CML’s predictions for lending figures in 2009.”

Sinclair calls on the government to implement recommendations made by Sir James Crosby in his recent review of the mortgage market, which include guaranteeing new mortgage securities.

“This move would help to ease the future funding of mortgage loans,” he explains. “The alternative is that many consumers will be trapped on higher cost loans.”

But Andrew Montlake, a partner at independent mortgage broker Cobalt Capital, says there are some reasons to be positive.

For example, he argues that lenders such as Abbey have started to reduce the cost of fixed rate mortgages, which should reduce the burden on those looking to buy. In addition, Nationwide has relaunched a mortgage deal that offers up to 95% of a property’s value.

The number of people looking to buy also appears to be increasing, according to research from the Royal Institution of Chartered Surveyors.

“Nobody is saying we're out of the woods quite yet but there are some glimmers of hope," Montlake says.