In its 2011 market forecast it says it expects interest rates to rise to 1.25% by the end of next year which would have a positive impact on remortgage volumes.
But it says many borrowers won’t necessarily look to switch immediately as rates are likely to creep up slowly.
The repayment of the £165bn Bank of England Special Liquidity Scheme in 2011 will further subdue gross lending, as will the Basel III balance sheet requirements, and the Mortgage Market Review will only add to lender caution.
Steve Cox, operations director at Spicerhaart Financial Services, says: “Lending criteria will remain tight as lenders focus on repairing their balance sheets, with a few more 90% LTV products becoming available, albeit with tight credit criteria, but little chance of a return of 95% loans during 2011.
“However, some innovation aimed at first time buyers, young professionals and families with a lack of equity who need to move, is expected as the main players fight for an adequate tranche of market share.
But Cox is predicting a strong buy-to-let market next year.
House prices are also predicted to fall in the first half of the year, largely recovering in H2 to show little growth by the end of 2011.
Upward pressure from the shortage of homes and the moribund construction industry will be counterbalanced with downward pressure from the lack of mortgage finance and affordability issues.
Alison Beech, business relationship director at Spicerhaart, says: “Lending will remain hugely constrained for those who do need to move house and many homeowners will hold off applying for mortgages in the first place, paralysed by fear of the rising cost of living and falling household income.
“The gap between the housing markets of the South East and the rest of the country is set to become even more pronounced, exacerbated by foreign buyers and city bonuses.”
Repossessions are expected to increase moderately next year, by approximately 10% to 15%, as interest rates begin to creep up against a backdrop of high public sector job losses.