The Intermediary Mortgage Lenders Association (IMLA) believe there is a real danger of negative housing predictions feeding a spiral of worsening sentiment.

Although the latest Bank of England Credit Conditions’ survey gave a relatively downbeat picture, there are some positive features.

Peter Williams, IMLA’s executive director, said: “Demand for secured loans has remained buoyant, and indeed demand for buy-to-let and other (non-prime) loans actually exceeded expectations overall. This suggests that despite the uncertainty of the credit squeeze and the consistently negative tone of the media, British consumers are still confident enough to want to borrow, partly because they take a longer term view.

“While the survey indicated a weakening in demand for house price purchase, it showed increased demand for re-mortgaging. Similarly, while the recent Financial Times’ survey of 55 leading economists was seen to offer a fairly gloomy view of the future but it is worth noting that only 13 saw the UK housing market as a major risk to economic stability in 2008, only 10 thought a house price correction might exceed 10% and only the same number felt it would severely impact upon the broader economy.

“Equally positively, we have seen the cost of 3-month LIBOR coming down partly reflecting the bank’s interventions before Christmas. Although the volume of interbank lending at this price remains small, we should expect to see the market ease over the next few months. With the potential for further intervention by the bank and a base rate cut, we should begin to see the cost of borrowing stabilise and fall which in turn will help the demand for borrowing.”