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Nowhere to Run to and Nowhere to Hide

The Council of Mortgage Lenders (CML) recently released its forecast for 2012 and the figures do not look good. The CML confirmed that gross lending for last year (2011) will total £138bn, with net lending of £9bn. However, for 2012, the CMLs forecast is for £133bn of gross lending and just £5bn of net lending, representing the weaker economic backdrop that now seems likely.

In other words, the net balance of money entering the property market will be almost half (down 44%) as much as last year (£5bn instead of £9bn), and in 2011 UK property prices only increased by 1.1%. Net lending of £5bn really is just a fraction compared to the good old days when house prices were soaring in value.

For example, in 2003 and 2004 net lending was £101bn (FSA figures) and property prices rose by 15.5% and 18.3% respectively. In 2005 net lending dropped to £91bn and property prices rose by just 3.2%. But in 2006 and 2007 net lending rose again to £110bn and £108bn and property prices rose by 9.3% and 6.9%. As we know, it all changed in 2008 when net lending crashed by -63% from £108bn to just £40bn (still EIGHT times more that this year!) and property prices that year fell by -17.3%, according to Nationwide figures.

Looking at the figures above, it is hard to predict anything other than property price falls in the UK in 2012, considering that net lending will slump by -44% this year. But there are even more worrying signs than the drop in net lending.

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