House prices will fall about 7 per cent this year, with no prospect of the mortgage lending market recovering in 2008, Britain's bank and building society trade body has warned.

The forecast from the Council of Mortgage Lenders (CML), reversing its October prediction of a 1 per cent rise, is the bleakest yet from any large industry body with an interest in the banking and housing markets.

The CML added that there was a risk that prices may fall more severely by the end of the year. It gave warning that the volume of housing sales would fall by 35 per cent to 770,000 transactions - levels not seen since the housing crisis of the mid-1970s.

The revised forecasts came as the CML reported that total mortgage lending in March and April, which includes loans for both purchases and remortgaging, fell 16 per cent against last year.

The CML predicts that net lending for the whole of this year, which takes account of mortgage redemptions, is expected to fall to £55billion, just half last year's figure. That indicates that the slump in housing deals is set to continue into 2009. Michael Coogan, the director-general of the CML, said: “Lending volumes will get worse before they get better.”

The buy-to-let market, which last year propped up buyer demand in the face of fewer first-time buyers, has not been immune from the downturn. During the first quarter there were 33,590 new buy-to-let loans for house purchases, a decline of 22 per cent from last year and a drop of 31 per cent from the peak of the third quarter of 2007.

Stewart Baseley, chairman of the Home Builders Federation, said that the downturn makes it likely that tens of thousands of jobs will go over the next few months, ranging from builders and carpenters to conveyancers, estate agents and mortgage brokers.

Taylor Wimpey, one of Britain's biggest housebuilders, is in talks with staff this week to close 13 of its 39 UK offices, which could cost up to 600 jobs, about 30 per cent of its workforce. Its shares closed down 16p, off almost 14 per cent, at 104p.

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