The Council of Mortgage Lenders has revised upwards its forecasts for house prices and mortgage lending over the next two years, in the light of a recovery in housing market activity in the second half of this year and the continuing high level of remortgaging.

Having earlier predicted that house prices would be broadly flat over the period from 2005 to 2007, the CML is now forecasting that they will rise by 4% this year. Over the next two years, prices are predicted to rise by 2% annually.

Even though the number of property sales is expected to decline from 1.23 million in 2004 to 970,000 this year and 920,000 in 2006 and 2007, the high level of remortgaging will ensure that gross lending remains buoyant.

But the CML emphasised that despite revising its forecasts upward, it is not expecting a new surge in house prices or market activity. Given continuing affordability pressures, a flat outlook for interest rates and an economy that is likely to be stuck in neutral for much of the next two years, the outlook is for modest house price growth only.

The CML welcomed the government announcement of a shared equity initiative involving lenders, and measures to increase the supply of property over time. But, warned CML chairman Stuart Bernau, the recent Pensions Commission report failed to acknowledge the full potential of equity release in contributing to enhanced pensions in future. And lenders remain concerned about the government's plans to introduce home information packs in June 2007.