House prices to drop seven per cent in the UK

House prices will drop seven per cent this year and there is likely to be a 35 per cent slump in property market transactions, according to revised forecasts from a leading mortgage body.

The Council of Mortgage Lenders (CML) predicted there will be 770,000 property transactions in England and Wales this year, down from 1.18 million in 2007.

The CML's last forecast in October had predicted a one per cent rise in house prices and a 14 per cent drop in transactions for this year.

The housing market has slowed sharply in recent months as a global credit crunch has seen lenders retreat from the market and consumers have reacted to rising inflation and a worsening economic outlook.

"The credit crunch has resulted in a gap in the availability of mortgage credit relative to demand. Lenders have changed their product ranges, tightened lending criteria and reviewed their pricing in order to maintain their individual ability to manage demand," Jim Cunningham, senior economist at the CML, said in the forecast.

Gross mortgage lending will total around £285 billion this year, down 21 per cent on last year and well below the previous forecast of £340 billion. Net lending will be half last year's level at £55 billion, and down from the October forecast of £90 billion, it said.

The CML's members include banks, building societies and other lenders and provide 98 per cent of UK home loans.