Lenders predict drop in house sales

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The organisation, which represents banks and building societies, is also braced for house prices to fall by around 7% in 2008.

The CML updated its forecasts at the same time as it reported gross mortgage lending of around £25.3 billion in April, a 5% increase from March but an 8% decline on the same month a year earlier.

For March and April combined, stripping out the impact of the early Easter, lending was down 16% from 2007 levels, the CML said.

In October, the CML said it expected house prices to rise 1% in 2008, with property sales likely to be broadly stable at just over one million. It said the number of transactions would be down on last year at 770,000.

The CML said there were some crumbs of comfort for the market, despite expectations of a sharp slowdown this year.

It said its outlook for mortgage arrears and repossessions remained unchanged, which it said reflected the fact that many borrowers coming off fixed rates on to higher rates appeared so far to have managed the "adjustment well".

CML director general Michael Coogan said the forecasts also assumed that actions taken by the Bank of England to improve liquidity would begin to have an effect in the mortgage market in the later part of the year.

He added: "Over the next few months, lending volumes will get worse before they get better.

"The market is still very uncertain, but lenders are working hard to ensure that borrowers coming off fixed rates remain on track, that arrears and repossessions are minimised, and that pricing is as attractive as they can make it in a market where they must manage the demand for lending with caution."