The CML's key messages behind its forecasts for 2011 are as follows:
1. The UK economy has begun a process of long-term re-balancing. Public sector spending cuts imply a difficult jobs market in the coming years. And with households also seeking to reduce levels of indebtedness, demand for mortgages may be subdued for some time.
2. Over the short to medium term, lenders will need to manage some large-scale re-financing of wholesale funding. From April next year onwards, lenders will begin to have to re-pay the funding advanced through official support schemes. This is likely to limit the availability of credit to support mortgage lending next year, and beyond.
3. Historically low interest rates are likely to underpin significantly current house price values, despite low levels of property sales.
4. The continuing prospect of low interest rates, and flat or modestly falling house prices, reinforces the likelihood that remortgaging levels will remain low, even though growing numbers of borrowers are coming to the end of introductory deals and reverting to their lenders’ standard variable rate.
5. Low interest rates will help the vast majority of households to manage to keep up with their loan repayments and so will help keep mortgage arrears and possessions in check.
6. The outcome of the Financial Services Authority’s (FSA) ongoing mortgage market review continues to be a major and unhelpful source of uncertainty for the lending industry. 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 believes the economy and housing and mortgage markets have progressed significantly since the financial crisis of two years ago and now appear to be stabilising. Recovery has however been patchy and weak. The supply of funds to the mortgage market is still limited and people remain cautious about taking on extra borrowing. Activity will remain subdued in 2011 and a return to the lending levels that characterised the middle of the past decade may not be seen for many years to come.