Steady rise in mortgage lending, arrears and repossessions

Your home may be repossessed if you do not keep up repayments on your mortgage.

Over the next two years mortgage lending will continue slowly on its upward trajectory boosted by remortgaging but arrears and repossessions will start to hit the headlines again as interest rates rise.

Figures from the Council of Mortgage Lenders show that gross mortgage lending is set to end 2015 at £214 billion, up from £203 billion in 2014. Going forward mortgage lending should continue to rise going up to £237 billion in 2016 and £261 billion in 2017. Improvements should also be seen in net mortgage lending which rose from £24 billion in 2014 to £27 billion in 2015. This year it is forecast to rise to £31 billion and move up further to £39 billion in 2017. The CML says this will primarily be the result of more first-time buyers entering the market.

As far as repossessions and arrears are concerned we are likely to see a rise after six years of falling figures. Arrears over 2.5% of the original balance reached a low of 102,000 in 2015 but are forecast to go up to 105,000 in 2017 as Bank base rate is anticipated to rise. Repossessions are predicted to go up from 2015 low of 10,500 to 18,000 this year and 19,000 in 2017.

The CML is forecasting limited market growth over the next two years with housing transactions similar to the last two years hovering at just over 1.2 million sales. It says the main reasons for this are high house prices relative to earnings, regulation in the homeowner market and uncertainty around buy-to-let.

Cash transactions are likely to remain around current levels and make up just over a third of all sales.

Inflation is likely to remain below 1% until the middle of 2016 and return to the 2% target by the end of 2017, which should give households more spending power.

The financial markets see the first bank of England rate rise coming at the start of 2017, but the CML believes it will be the second half of 2016. It says house purchase activity from homeowners and an increase in remortgage activity is likely this year.

While buy-to-let remortgaging has been strong for some time, homeowner remortgaging has picked up from a 15 year low and should continue to rise over the next two years The CML says that around half of the increase in gross lending over the next two years will be driven by remortgage activity in both the residential and buy-to-let space. This is because borrowers will take advantage of record low mortgage rates and better deals as a result of increasing house prices improving their equity positions. Remortgage activity will also likely to be boosted by rate rises when they start to occur.