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UK property sales and lending should rise modestly in 2013 says the CML

It expects to see a gentle underlying improvement in lending activity over the next two years and in its end of year report says that activity levels in 2012 have been better than expected.

It points out that coming alongside wider improvements in funding conditions since the middle of 2012 the FLS appears to be making an early positive contribution to mortgage pricing and credit availability.

‘Our central view is that this will continue, and give rise to a discernible, although not dramatic, improvement in lending activity through 2013,’ said Bob Pannell, CML chief economist.

He said that the prospect of household real incomes stabilising, and then recovering slowly, should help to underpin housing and mortgage activity, by the time the stimulus from the FLS fades when draw downs under the scheme cease from early 2014.

‘Assuming that the jobs market continues to be relatively stable, and that lenders retain the flexibility to determine where forbearance is appropriate, we envisage arrears and possessions remaining close to current levels throughout the forecast period,’ he explained.

‘While our central forecast is for a gentle underlying improvement in activity over the next two years, there are several key market risks and these are predominantly on the downside. The biggest concern continues to be that of a disorderly break up of the Eurozone, although the possibility of this appears to have reduced somewhat over the past year. A tougher line from macro prudential regulators on capital requirements could also dilute the positive effects that we expect to see from the FLS,’ he added.

Overall the CML predicts a discernible but modest improvement in activity levels next year, on the back of better funding market conditions and a still subdued, but slowly improving, UK economy.

‘The FLS is a significant influence on the overall profile of our market forecasts. Better credit availability and lower mortgage rates should help to stimulate stronger activity through 2013, but not dramatically so, given the headwinds that continue to hold back consumer spending and the wider economic recovery,’ said Pannell.

‘We see household finances stabilising through 2013, as consumer inflationary pressures recede. A gentle recovery in real incomes then supports more widely based domestic economic growth and this in turn helps to offset any negative impact that may be associated with the expiry of the FLS,’ he pointed out.

He also said that better credit availability offers some clear upside potential for housing and mortgage lending activity in 2013 , but in most other respects the short term risks to activity levels are weighted in a downwards direction.

‘As well as the ongoing downside risks associated with the eurozone, our forecasts depend crucially on the continuing resilience of UK employment. Recent comments from UK regulators about the capital requirements of major banks have also added some unhelpful uncertainty to how banks feel able to respond to incentives to lend,’ he explained.

‘Overall, however, 2013 should be a year in which housing transaction numbers and mortgage lending both show a modest but tangible increase,’ he concluded.

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