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While gross mortgage lending saw a slight recovery in April, the CML warned of a tough year ahead for both the property and mortgage markets.

Figures published by the CML last week revealed the extent the trade body had been required to revise its previous forecast, made in October 2007, of house prices increasing 1 per cent this year.

Michael Coogan, director general for the CML, said: "Forecasting even the short-term outlook for the housing and mortgage markets remains problematic. So, we continue to limit our forecast horizon to the end of 2008."

As well as a 7 per cent fall in house prices the CML predicted a 21 per cent reduction in gross lending compared with last year's figure of £363bn. The CML said a figure of £285bn was more realistic than its previously forecasted figure of £340bn. Net lending was also expected to be close to £55bn this year, almost half of last year's figure of £108bn. The number of property transactions in England and Wales is expected to fall by 35 per cent this year, from 1.22m in 2007 to 770,000 this year.

In October last year the CML had forecast 1.01m transactions in 2008. However, the CML said it expected its forecast for arrears and possessions to remain unchanged. It predicted the number of repossessions would increase 0.38 per cent on last year's figures to 45,000 in 2008. The CML's predictions came as it reported lending for April was £25.3bn, a 5 per cent increase on March's figures. However this was 8 per cent less than was lent in April of last year.

Mr Coogan said: "In the wake of the credit crunch, 2008 will be remembered as a very weak year in the housing market. "But our forecasts assume some indirect benefits from the Bank of England special liquidity scheme beginning to have an effect in the mortgage market in the later part of the year. In the next few months lending volumes will get worse before they get better."

Paul Kelly, partner of Liverpool-based IFA Parker Kelly Financial Services, said he agreed with the CML's view that it was impossible to forecast what was happening in the market beyond the next six months. He said: "I have noticed that our enquiry levels have dropped off substantially. Remortgage rates are flat so there is nothing new there. We are saying to our clients to stay with their lender for the time being."