MortgagesJul 30 2014

CML revises forecast with lending hitting £200bn

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The Council of Mortgage Lenders has revised its market forecasts, stating that lending for this year and next looks set to be stronger than it had projected, with gross lending rising above £200bn for the first time since 2008.

The CML expects lending growth to continue into next year, although at “a more sedate pace”, as momentum in the housing market diminishes under growing affordability pressures.

The latter is likely to impact more noticeably on first-time buyers, such that their share of overall loans for house purchase retreats from recent 14-year highs.

On the basis that the Treasury has announced that no sales under Help to Buy should be on more than 4.5 times income multiple, the CML predicted that the schemes seem likely to account for a growing share of overall first-time buyer transactions over the short-term.

The forecast said: “We envisage a further gentle recovery of remortgaging from earlier 15-year lows.”

It added that the prospect of higher interest rates will in due course provide a much stronger incentive to remortgage, but the impact may be limited during the early stages of rate tightening of our forecast period.

Better mortgage credit availability has supported the recovery of mortgage demand over the past two years.

The forecast said: “However, the latest Credit Conditions Survey suggests that this source of stimulus may now be drying up, amid signs that lenders may be approaching the limits of their risk appetite with respect to maximum loan-to-value and income multiples.”

The CML envisaged that recent regulatory actions will contribute towards a gentle trajectory for the mortgage market, with lenders not anticipating dramatic changes as a result of Mortgage Market Review, although its affordability rules may narrow the scope for underwriting discretion at the margins.

The Financial Policy Committee’s recent market interventions may shrink overall risk appetite, according to the CML.

It said: “For example, lenders who have relied less on the interest rate stress test within their affordability decisions may be slow or reluctant to re-engineer their models, and lenders may seek to maintain a buffer below the 15 per cent loan-to-income cap.”