Repossessions to rise in 2011, lenders forecast

For Sale signs Sales will stay low in 2011, lenders predict

Mortgage arrears and repossessions will rise modestly next year, the Council of Mortgage Lenders (CML) predicts.

Its annual forecast for the UK property market paints a picture of continued stagnation, with the current low level of sales persisting, and prices falling modestly or staying flat.

The CML says that mortgage rationing by banks and building societies will continue.

And the poor state of the economy will deter some potential home buyers.

"Given the continuing economic uncertainties, there is little to encourage buyers," the CML said in its annual market forecast for 2011.

"First-time buyers will continue to find it difficult to get into the market.

"With funding in short supply, the availability of mortgages for first-time buyers will remain limited," it added.

Repossessions

The level of arrears and repossessions has been on a downward trend, falling gently since the middle of 2009.

Start Quote

We predict a modest increase in arrears and possessions next year”

End Quote CML

This has been due to a sluggish recovery from economic recession, and unemployment reaching a plateau just below 2.5 million people.

The finances of many home buyers have been helped crucially by the long period of ultra-low interest rates.

The Bank of England steadily cut its base rate from 5% in 2008 to 0.5% in March 2009, and it has stayed at that level since.

Despite this, the CML says there are some mortgage borrowers who will not be able to hold out any longer.

It predicts that there will be 40,000 repossessions in 2011, up from an estimated 36,000 this year.

"We predict a modest increase in arrears and possessions next year, reflecting the continuing pressure on household finances, the persistence of cases of long-term arrears and the government's decision to cut help for borrowers by cutting payments of support for mortgage interest," it said.

Mortgage rationing

With lenders having to start repaying about £130bn of emergency lending in 2011, the CML says there is no chance of the severe mortgage rationing of the past couple of years easing off.

Houses Many homes are out of the reach of first-time buyers

In fact the lenders' organisation warns that the position may become worse, as international banking rules tighten the screw on loans to borrowers with only small deposits.

On Tuesday, the Financial Services Authority (FSA) reported that loans with a deposit of 10% or less of the purchase price currently account for just 2% of all new mortgages.

And loans with both small deposits and high income multiples make up just over 1% of all new lending.

"Activity in housing and mortgage markets is set to remain broadly flat in 2011 and we do not envisage a return to the lending levels that characterised the middle of the last decade for many years to come," the CML concludes.

Opinions

The view that next year will be one of stagnation for the property market is backed up by an opinion poll conducted by the Building Societies Association (BSA).

It found that only 43% of respondents thought it was now a good time to buy a property, down from 58% a year ago.

And 36% believed that prices would fall in the coming year, a higher proportion than the 33% who thought prices would rise.

The shrinking number of first-time buyers has pushed up demand for properties to rent.

As a result, rental prices for UK properties increased by 0.9% in the final quarter of 2010, pushing them to their highest level since October 2008, according to property website FindaProperty.com.

The average rental price across the UK increased from £851 a month in September to £859 a month in December, it said.

House-sharing website Spareroom also said that it had seen an increase in the number of lodgers as property owners decide to rent out a room, rather than sell up.

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