House prices 'will continue falling' amid mortgage woe

Mortgage lending remained at less than half pre-credit crunch levels last year, new figures have revealed.

Experts have warned that, with lending conditions unlikely to improve in 2011, house prices are set to continue falling.

The Council of Mortgage Lenders (CML) yesterday reported that 529,300 mortgages worth 77.1 billion had been advanced for house purchase last year, an increase from 2009 of 3 per cent in number and 11 per cent in value.

It was the highest figure since 2007, when 1.14 million loans were advanced for house purchase that year. The decade high was 1.39m in 2002.

Last year, only 194,600 loans were advanced to first-time buyers, down 1 per cent from 2009 and less than half the 400,000 figure of four years ago. Overall lending was dragged down in 2010 by a sharp decline in remortgaging levels, which slumped to a 13-year low as tightened lending criteria and low interest rates saw more homeowners stay on their lenders' variable rate mortgage.

The CML also revealed that first-time buyer numbers had dropped by 42 per cent in December, compared with the same month a year previously, with overall lending down 37 per cent over the period. First-time buyers had to stump up a deposit of 23 per cent in December, up from 21 per cent the previous month.

• View from those at the sharp end

Michael Coogan, director general of the CML, said: "2010 was about the mortgage market continuing to adapt to the post-credit crunch environment, and the full-year data shows that the lending industry is now on a more stable footing but at historically low levels of activity.

"House purchase lending held up, and shows the market is open for business.

"However, it is still not serving all customer groups that may want to borrow, in particular those without a significant deposit."

Mr Coogan warned there was little prospect of a pick-up in mortgage lending in 2011. He said: "Access to funding for lenders is expected to stay under pressure this year, but it will now be matched by lower consumer demand due to the economic backdrop and a range of uncertainties which will impact the timing of borrowing decisions.

"We conclude that this will lead to gross lending levels in 2011 staying flat compared to 2010, with downside risks."

His concerns chime with predictions from a number of economists that, with lending down, further house price falls are inevitable.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The CML mortgage data for December remain very low compared to long-term norms and do little to dilute suspicion that house prices will remain under downward pressure in the near term at least."

He acknowledged December's bad weather had limited activity in the housing market."Nevertheless, the underlying trend in mortgage advances clearly remained soft in December and this maintains our belief that house prices will trend down further," he said.

Ed Stansfield, property economist at Capital Economics, forecasts house price falls of about 10 per cent this year and a further decline in 2012.

Mr Stansfield, speaking in Edinburgh recently, said: "It is hard to envisage any improvement in credit conditions, and I also doubt that the private sector will generate enough jobs to offset rising public sector unemployment."