CML forecasts house price rise

If you’re planning to sell your property in 2007, then there’s good news. The Council of Mortgage Lenders (CML) has forecast that house prices will rise by 7 per cent in 2007 and 5 per cent in 2008. The bad news is that rising prices will make it even more difficult for people to afford to buy homes, so there will only be a small rise in the number of property transactions in 2007 (1.19 million), followed by a fall in 2008 (to 1.13 million).

Gross lending for this year will be around £345 billion and will rise to £360 billion in both 2007 and 2008, according to the CML forecasts. Meanwhile, net lending, will rise from £108 billion this year to £120 billion next year and will fall to £115 billion in 2008.

Loans for house purchase will increase from £169 billion this year to £186 billion in 2007 and £187 billion in 2008. Loans for remortgages will fall from £141 billion this year to £140 billion in 2007 and £139 billion in 2008. Lenders have been trying to retain borrowers, with a resulting fall in remortgages.

Buy to let is expected to boom, with borrowing expected to increase more quickly than borrowing for residential purposes. Buy to let borrowing is expected to be 13 per cent of gross lending in 2007 and 14 per cent in 2008, compared with 11 per cent this year.

With recent interest rate rises, the CML expects the number of mortgage arrears to rise from 105,000 at the end of 2006 to 130,000 at the end of 2007, before reducing to 120,000 at the end of 2008. Repossessions are likely to be 18,000 a year during this period. The CML expects demand to remain strong relative to supply for the foreseeable future, leading to house price rises. At the same time, this will put pressure on affordability, reducing the number of sales.