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The Council of Mortgage Lenders (CML) has made positive revisions to its 2009 housing market forecast and has downscaled the number of home repossessions expected this year.

In its latest monthly report, released yesterday (June 22nd), the organisation gave a more positive bill of health to the UK housing market after taking into account the dramatic interest rate cuts seen in recent months and the corresponding falls in typical mortgage lending rates.

The organisation also held praise for the government's interventions in the mortgage market, which were deemed to be effective in limiting the drought of new home loan lending that has afflicted the sector in recent months.

However, while the overall situation has improved, the CML clarified that the mortgage market is still in a very fragile position, with a full recovery still many months off.

Managing in a subdued market

In making its assessment this month, the CML identified that first and foremost, the economic conditions in the UK are still very challenging and will continue to weigh heavily on the mortgage market.

The group still expects substantial job losses, although unemployment forecasts have brightened slightly this month.

And while redundancies will undoubtedly cause misery for some homeowners, the CML recognised that the cut in interest rates is giving homeowners much more breathing space in ensuring that monthly repayments are met.

Meanwhile, those who are falling behind with payments will also be accruing debts more slowly as interest rates remain historically low.

Taking these factors into account, the organisation has announced that it has lowered its forecasts for the number of people that will have fallen into arrears equal to 2.5 per cent or more of the value of their mortgage by the end of the year to around 360,000.

Although this number is up from the 182,600 people in arrears at the end of last year, it is also 15 per cent lower than previous projections for this year.

The CML continued: "As arrears continue to climb, more borrowers are likely to face the risk of repossession. But, echoing our lower arrears forecast, we have cut our prediction for the number facing possession this year to 65,000, from our last estimate of 75,000."

Lending will remain weak

With the government's unprecedented financial support package for the UK banking industry now beginning to work its way through to the average consumer, the CML also announced that it believes the stifling shortfall in new mortgage lending is beginning to lift.

However, it anticipates that people will continue to struggle to obtain approvals for both new loans and remortgage deals, with this likely to forestall any possibility of a robust recovery in the housing market for many months to come.

"Despite some recent encouraging signs, we believe it is too early to be sure that the slightly more positive recent news from the housing market indicates the start of a robust recovery," the group clarified.

It announced that while some of the UK's biggest buildings are beginning to reopen their doors to new lenders, their efforts to extend credit are unlikely to fully offset the shortfall in mortgage finance from smaller providers.

The CML also warned that while first-time buyers will find it marginally easier to find a new deal, total lending is likely to be dragged down by a drop in remortgaging activity.

Lower house prices and strict lending criteria are expected to remain an obstacle for those looking to refinance for the rest of the year and these restrictions, taken in consideration with other significant factors, encouraged the CML not to revise its projections for gross mortgage lending for 2009, which remain at £145 billion.

However, the group added: "Our forecast is for net lending to fall by £5 billion, which represents a considerable improvement from the £25 billion contraction we had previously anticipated."

The most recent monthly lending figures from the group, released last week, show that that total mortgage lending stood at £10.3 billion in May, a 2.5 per cent decline from the £10.5 billion recorded the previous month.

"Underneath the headline gross lending figure, it's likely that a moderate improvement in house purchase lending in May has been offset by very low remortgaging volumes as borrowers stay with existing deals," commented CML economist Paul Samter.

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