David Prosser: No return to 2007 lending levels any time soon

Outlook So much for mortgage lenders' famous promise to return to the lending levels of 2007, given earlier this year in return for massive Government support of many of our leading banks. How much does the Council of Mortgage Lenders reckon its members will advance in 2009? About £145bn – less than half the £363m doled out in 2007.

In fact, it is worse than that. Net lending – that is the total amount advanced minus customers' mortgage repayments – is likely to come in at minus £25bn next year, the CML says, compared with a positive figure of £108bn for 2007.

Lenders' arguments about the constraints on their activities are now well rehearsed. For the record, they complain about the need to balance the needs of savers and other borrowers, as well as the requirement that they be much more prudent about financial strength than in times gone past.

A more significant factor, however, in the CML's forecast for next year, may very well be the anticipated lack of demand for borrowing. It reckons there will be just 700,000 housing transactions over the course of 2009 – compared with the 1.6 million seen last year. That if fewer people are buying property, there will be less demand for mortgage finance may be a statement of the obvious, but it's one worth bearing in mind before we rush to criticise lenders for breaking that promise.

Another looming problem for mortgage lenders is a sharp increase in bad debt, which will damage balance sheets rather than improving them. The CML's forecast of a more than doubling in mortgage arrears, to 500,000, next year, sits alongside its prediction that repossessions will rise from 45,000 in 2008 to 75,000 next year.

Understandably, discussion of such figures is mostly focused on the borrowers who are running into trouble. But the other side of the coin is the increasing burden of bad debt that lenders face in such circumstances. It will hardly be conducive to a policy of increasing lending, even if there was demand for a boost to mortgage finance.