Tight lending? You ain't seen nothing yet, says CML

House prices look set to fall next year, housing minister Grant Shapps has said.

Meanwhile, the Council of Mortgage Lenders this morning warned that a critical new era of even tighter lending would be ramped up from spring onwards.It is forecasting the lowest levels in lending for 30 years in 2011.

In an unusual break with tradition – housing ministers do not normally predict markets – Shapps said in the House of Commons: “House prices have doubled in the last ten years, putting home ownership beyond the reach of many potential first-time buyers.

“This Government believe that what is needed now is not a return to rapid house price growth but a period of house price stability.”

He said that house price forecasts from the Office of Budget Responsibility and the Treasure “suggest there will be modest falls in house prices in 2011 and rises beyond”.

Shapps did not address the crucial issue, as to whether lenders would actually start lending again.

This is, however, confronted head-on in forecasts published today by the CML.

The CML warned: “From April next year onwards, lenders will begin to have to repay the funding advanced through official support schemes. This is likely to limit the availability of credit to support mortgage lending next year and beyond.”

The CML also took another swipe at the Financial Services Authority, saying that its ongoing Mortgage Market Review – intended to herald an era of ‘sensible lending’ (which some fear will mean ‘no lending’) – “continues to be a major and unhelpful source of uncertainty for the lending industry”.

It went on: “Firms do not know when the FSA will issue firm rules or whether it will modify its current excessively risk-averse approach. This uncertainty will itself reinforce lenders’ caution.”

The CML is predicting 0.86 million housing transactions next year, down from this year’s estimate of 0.89 million.  It thinks the number of loans will shrink to £6bn, down from an estimated £9bn this year. It also thinks that arrears will climb from 175,000 to 180,000 and that possessions next year will creep up from 36,000 to 40,000. It has also forecast that remortgaging will remain subdued.

The CML’s forecasts are in line with what the RICS is saying. It said that in November, the number of first-time buyer inquiries fell for a sixth month, with some individual surveyors predicting that the flat picture will continue into next year.