Mortgage lending predicted to weaken in 2017 amid tougher conditions

Updated: 

Mortgage lending will be weaker in 2017 than previously expected as households are faced with tougher economic conditions, according to predictions from banks and building societies.

The Council of Mortgage Lenders (CML) has revised down its expectations for 2017, saying the more "pessimistic" outlook is partly due to economic uncertainty following the vote to leave the EU, as well as a result of tax and regulatory changes in the housing and mortgage market.

Buy-to-let house purchase activity in the housing market is likely to have peaked, with weaker levels of activity expected to continue over the coming years, according to the forecasts. 

The number of homes being repossessed is also expected to start edging upwards next year, although the figure would still remain relatively low compared with longer-term trends, the CML said.

Around £248 billion of home loans are now expected to be handed out during 2017 - lower than a prediction of £261 billion for 2017 given a year ago - the CML said. In 2018, around £252 billion of loans are expected to be advanced.

Repossessions are expected to increase from around 7,900 cases during 2016 to 10,000 across 2017. In 2018, the figure is predicted to edge up further, with around 13,000 repossessions.

The CML said despite the expected deterioration in the figures generally, the housing market is "relatively well insulated from Brexit" compared with other parts of the economy, as most activity is driven domestically. It also said the majority of borrowers will be able to cope with the expected harsher economic conditions from next year.

Looking at the different types of buyers in the market, it said stamp duty and regulatory changes are likely to weigh heavily on the buy-to-let sector. A stamp duty hike came into force for people buying second homes, including buy-to-let investors, on April 1.

The CML's report said: "We expect to have seen peak buy-to-let house purchase activity in 2015, with 2016, 2017 and 2018 all expected to be weaker."

It also said that while the number of first-time buyers has increased by 116% since a low in 2009, the "real weakness" in the market is coming from home movers higher up the property chain, such as people trying to take their second step on the property ladder. Home mover numbers have only grown by 44% over the same period, it said.

Despite facing affordability pressures, first-time buyers have been "supported somewhat by various government schemes", the report said.

The CML expects the current rate of new homes being built to increase "only modestly", with weaknesses in supply also coming from people not putting existing homes on the market. It also predicts that cash house sales will continue to make up a large part of the market, continuing a trend of making up just over a third of all transactions.

In addition to its forecasts, the CML also reported that lending totalled around £21 billion in November - up by 3% on October, and also 3% up on a year ago.

CML director general Paul Smee said: "Overall, the mortgage market remains resilient but is likely to plateau rather than grow much for the next couple of years.

"Gross lending is likely to hover around the £250 billion mark in 2016, 2017 and 2018. Property transactions look set to drift down slightly, although we do not expect house prices to fall, and net lending seems unlikely to get above £30 billion next year."

Jonathan Harris, director of mortgage broker Anderson Harris, said it was "no surprise" that the CML had revised its forecasts.

He added: "It is hard to see any movement in interest rates and mortgage rates are likely to be fairly settled as well.

"We do not expect them to rise significantly next year - while economic news will impact swap rate movements from time to time, pushing up the cost of borrowing, overall we expect the mortgage market to tick along much as it has."