The property market is flourishing in 2006, prompting the Council of Mortgage Lenders (CML) to revise its forecasts for future housing market activity. The CML now expects house prices to end the year 7% higher than at the start, compared with a 2% forecast in February. Next year?s house price inflation forecast has also been raised ? from 2% to 3%.

The CML comprises banks, building societies and other lenders who together undertake around 98% of all residential mortgage lending in the UK. Recent housing market analysis has caused the Council to anticipate substantially more sales this year than they did four months ago – 1.2 million, as opposed to 0.97 million in February.

This increased strength is reflected in the CML’s revisions to its lending forecasts. Gross lending is now expected to reach £310 billion this year (up from £285 billion previously forecast), although the CML has left its forecast of £285 billion for next year unaltered. Net lending is now predicted to total £100 billion this year (up from the £80 billion forecast in February), before falling back to £85 billion next year (up from £75 billion).

?The immediate signs are that demand will remain robust over the next few months,? said senior economist Jim Cunningham, CML, ?But we take the view that confidence and activity are closely associated with interest rate movements and expectations.?

Whilst predicting more property sales, the CML has also upped its forecast on the level of interest rates and the number of repossessions. The strength of the housing market is in fact weighing against it, with the CML now expecting interest rates to end both 2006 and 2007 at 4.75% rather than the 4.5% previously forecast.

But according to Mr Cunnigham, the 2008 property market will be brighter. ‘The more benign inflation outlook is expected to result in lower interest rates by early 2008,’ he commented, ‘This in turn should support demand from home-buyers and buy-to-let investors and result in firmer house price growth.’