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Mortgages to fall back after boom

Rate rises set to slow sector following record lending.

The mortgage market is expected to contract in 2007 after figures revealing that lending last year smashed all records.

The recent interest rate rise from 5 to5.25 per cent is predicted to see levels of lending fall over the next 12 months, with further rate rises predicted later this year.

The Council of Mortgage Lenders, which had predicted lending in 2006 would reach £345bn, got its sums almost spot-on as it revealed last week that the final figure was £346bn, 20 per cent up on 2005. The record figure, the CML says, was fuelled by annual house price growth of around 7 per cent coupled with a 14 per cent increase in the number of house sales.

HBOS is working towards a £330bn market in 2007, partly down to less remortgaging activity, while the CML says it will keep an eye on its initial prediction of a £360bn market, made at the end of last year.

A bleak picture had been painted by Edeus pair Alan Cleary and Michael Bolton towards the end of 2006 when they claimed over £100bn could be wiped off the value of the market if retention schemes took off, although no lender has yet followed HBOS’s full proc fee launch to any great extent.

Royal Institution of Chartered Surveyors chief economist David Stubbs says: “We expect the market to soften in coming months as rising mortgage interest rates begin to restrict housing demand.”

CML director general Michael Coogan says: “The recent increases in rates might make many aspiring homeowners think twice about getting on to the property ladder and we expect to see levels of activity dampen as the year progresses.”

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