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Lending forecast raised by CML

Strong summer boosts business

The Council of Mortgage Lenders expects gross lending this year to beat previous forecasts.

It is predicting that between 340-345bn of business will be transacted this year compared with 288bn in 2005 and its June forecast of 310bn. It says net lending is likely to be around 105-110bn compared with 91bn last year and its June forecast of 100bn.

But it says the remortgage sector has not performed as well as expected.

The comments from CML senior economist Jim Cunn- ingham came as the Bank of England monetary policy committee last week decided to keep base rate at 4.75 per cent, although a 0.25 per cent rise is expected next month.

The CML believes that another rate rise could cause the property market to fall by almost 15 per cent.

Cunningham says: “Housing and mortgage market activity was stronger over the summer months than we were expecting at the time of our last market forecast in June. This does not apply to every aspect of the market.

“We have, for example, been surprised by the absence of clear strengthening in remortgaging activity, given the number of fixed-rate mortgages that were due to mature and the attractiveness of fixed-rate products available.

“History shows that if interest rates rise, mortgage approvals for house purchase are likely to fall. A rate increase to 5 per cent could result in a peak-to-trough decline in approvals of between 5 per cent and 15 per cent.”

Alliance & Leicester head of intermediary mortgages Mehrdad Yousefi says: “First time buyers on a tight budget should consider opting for a fixed rate to secure themselves against potential rate rises. For homeowners able to be flex- ible, there are still many competitive tracker deals.”

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