Smart money: Dreaded double dip looms for property market as mortgage lending slumps

Mortgage lending plunged to a 10-year low in 2010, according to figures published yesterday, as a leading economist predicted a double-dip slump in the housing market.

Home loan advances totalled just 136.3 billion last year, the lowest annual total since 2000 and just a third of the 2007 level, when lending reached 362bn, the Council of Mortgage Lenders (CML) revealed.

There was also a significant decline in December, when lending was down 6 per cent from the previous month and 18 per cent below the level of December 2009. It was the fourth consecutive month in which the monthly figure was the lowest since 2000.

And the CML said earlier this week that it did not envisage any improvement over the coming year. It predicted about 860,000 housing market transactions in 2011 - a third below the activity expected in a normal market - and gross lending of 135bn, marginally below the 2010 level revealed yesterday.

It said: "The housing market in 2011 will continue to be shaped by a wider economy in which recovery is likely to be weak and patchy."

Ed Stansfield, property economist at Capital Economics, told an Edinburgh conference on Thursday that a double dip in house prices was already underway.

The group forecasts a fall of around 10 per cent this year and a further decline in 2012. Mr Stansfield, speaking at the firm's annual UK forecast forum, said: "At the very least house prices will drop back by 6 or 7 per cent this year. Over the next two years there will be strong pressures on the market; 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."

The key to the housing market over the next two years lies with the labour market, he added.

"If unemployment rises, that will offset the benefits of low interest rates," said Mr Stansfield.

The CML's figures were published days after the Royal Institution of Chartered Surveyors Scotland reported a fresh fall in property sales in December. It said the Scottish housing market would remain subdued over the coming months.

The report prompted a leading Edinburgh estate agent to warn that with no lending improvement in sight, Scotland's housing market could take years to recover from its slump.