House prices will fall this year, says mortgage body

The body representing Britain's mortgage lenders has cut its forecasts for house price growth and now believes property values will fall 2% this year.

The Council of Mortgage Lenders said yesterday that it was now more pessimistic about house prices because conditions in the market had become more "difficult".

Its comments came a day after mortgage bank Alliance & Leicester said it expected either no growth or small price falls this year.

With the Bank of England expected to cut interest rates today the CML, which represents banks, building societies and other lenders, said house prices nationally had more or less marked time since last summer.

It previously predicted UK prices would end this year up 4%, but yesterday said it now believed they would fall 2%. The CML believes prices will be flat in 2006 - revised down from its previous forecast of 2% growth.

Its prediction that house prices will edge up 2% in 2007 remains unchanged. Last year prices rose 15%.

Bob Pannell, its head of research, added: "The indications from estate agents and surveyors are that house price weakness is likely to persist for some while." But he said a dramatic collapse in prices was "unlikely".

The organisation also predicted that house repossessions and mortgage arrears were likely to increase modestly from current levels.

It had predicted that 8,350 homes would be repossessed this year, but has increased this to 10,000, rising to 11,000 in 2006 and 12,000 in 2007.

"If the economic backdrop remains reasonably favourable, as seems likely, there is little risk of a severe housing market recession, and so we expect arrears and possessions to remain at low levels," said Mr Pannell.

All in all, he added, the CML expected the next few years to be more challenging for households, lenders and policymakers.