What does 2011 mean for mortgages?

As 2011 begins, the outlook for the mortgage market is mixed, with official statistics and expert predictions often contradicting each other, but it appears that the housing boom witnessed earlier this decade is not set for a repeat.

The most recent figures issued by the Council of Mortgage Lenders (CML) show that gross mortgage lending in November was an estimated £11.1 billion, which represents a five per cent drop from the £11.6 billion recorded in October.

According to the CML, this reflects the "distortion" in lending towards the end of the 2009 stamp duty concession, as the November figure was a full ten per cent lower than the £12.3 billion issued in November 2009.

Furthermore, the figure is the lowest November total since 2000's £10.9 billion, and is the fifth consecutive month where gross mortgage lending has been weaker than that recorded a decade ago.

These weakening figures suggest that the mortgage market may be in for a rough ride in 2011, according to CML chief economist Bob Pannell, though it may not be all doom and gloom.

He explained that November's fall in gross mortgage lending reflects the usual slowing of activity at the end of the year, and "reinforces the picture of a continuing flat market".

However, he noted that comparisons with the year before may be skewed, as some households brought forward their plans to buy new homes in order to take advantage of the stamp duty concession.

Mr Pannell added: "Both demand for mortgage borrowing and the supply of funds for lending remain heavily constrained.

"The CML market forecasts published last week suggest that gross mortgage lending in 2011 is likely to remain at similar levels to this year. We estimate gross mortgage lending for next year will total around £135 billion."

Also commenting on the figures, Michael Coogan, director general of the CML, said: "Consumer confidence has also been affected by October's spending review, despite the relative affordability of monthly mortgage payments, and so a stable but small lending market will continue for some time to come."

Will they rise?

However, Cath Hearnden, director at advice organisation MyMortgageDirect, said that she expects mortgage lending to rise next year, namely because it cannot fall any further.

She said that the market is "never going to stagnate", as there will always be movement, while inflation is likely to be higher next year, possibly due to a rise in interest rates.

According to the expert, people are beginning to consider moving off variable rates and onto fixed rates.

She predicted: "Remortgages will increase, and if mortgage lending is at an all-time low, it is going to increase. The market will move, I just don't think it is going to take off. That is probably a good thing."

Echoing the comments made by Mr Coogan, she said that consumer confidence has definitely been affected, mainly due to negative reports by the media.

"That has a roll-on [effect] on confidence. Confidence is only borne out of what they hear on the news, reading the newspapers," Ms Hearnden elaborated.

She noted that one possible repercussion is that conditions will be far more difficult for first-time buyers.

According to the expert, only those with a "huge" deposit who are employed will not struggle, while first-time buyers are likely to feel the effects and face real difficulty in making it onto the housing ladder.

Lucian Cook, director of residential research at Savills, agreed, noting that first-time buyers will be "the last people to benefit" when mortgage lending eases, and that it is very difficult to predict when this will occur.

"Currently they require big deposits and, generally when you have that big deposit, mortgage finance comes at a premium. Therefore they don't have the affordability advantage that perhaps some people already on the housing market would have if they were to compare owning against renting," he explained.

It is clear as 2011 begins that the mortgage market looks set to be the subject of continuing uncertainty, with only those with the biggest deposits and most stable personal circumstances guaranteed to receive backing from banks and other mortgage providers.