Measures taken by the authorities have stabilised the economy
The Council of Mortgage Lenders (CML) have announced that due to the large cut in interest rates they predict there will be fewer households falling behind with their mortgage payments this year, as well as a reduction in the number of homes taken into possession.
Conditions in housing and mortgage markets remain challenging but a combination of lower interest rates, measures to reinforce the forbearance shown by lenders to borrowers in difficulty and improved government support for home-owners has led the CML to reduce their forecast for the number of possessions this year from 75,000 to 65,000.
In publishing the CMLs revised forecasts for 2009, they confirmed that they now expect around 360,000 loans to be in arrears of 2.5 per cent or more of the mortgage balance by the end of this year. That is still higher than the 183,000 we saw at the end of 2008. But it is 15 per cent fewer than they had originally anticipated.
The CML is leaving unchanged their forecasts for the number of housing transactions and the volume of gross mortgage lending in 2009, at 700,000 and £145 billion respectively. But the outlook for net lending they have confirmed looks less negative than previously forecast. The CML only expect net lending to fall by £5 billion this year, compared to the £25 billion previously predicted.
A raft of measures taken by the authorities have stabilised the economy and will help bring about recovery over time. But the improvement is still likely to be slow and drawn out, especially as the extensive range of fiscal, monetary and credit support measures that have been introduced are gradually scaled back.
Lower interest rates not only give borrowers a better chance of keeping up with their payments if they suffer a temporary fall in income, but also ensure that arrears build up more slowly if customers are not able to maintain all their payments in full. Despite some recent encouraging signs in the housing market, however, the CML still believe it is too early to be sure that this indicates that we are at the beginning of a robust recovery.
Some of the measures implemented by the authorities have reduced the decline in available mortgage funding, but lenders still face considerable challenges in increasing the supply of mortgage credit. So, lending commitments made by some large players are unlikely to offset fully the effects of a reduced capacity to lend by other firms. And given the weak economic backdrop, which will lead to an increase in unemployment this year, the number of housing transactions is likely to remain subdued for some time.
Remortgaging activity has had a significant effect on overall volumes of gross lending in recent years. However, tighter lending criteria and falling house prices have affected the ability of some home-owners to remortgage, while the ability to revert to an attractive standard rate has reduced the incentive to re-finance for others.
The CML expect interest rates to remain low for some time, and no immediate recovery in house prices, so it appears unlikely that lending criteria will relax to any significant extent in the short term. That will help ensure remortgaging activity remains subdued.