Up to 100,000 homes could be pushed into negative equity by the end of this year because of the credit crunch, the Council of Mortgage Lenders (CML) stated last week

While this was far more optimistic than a recent Morgan Stanley prediction that as many as 2m households could face negative equity by the end of 2009, it is still a significant admission from the lenders’ trade body.

The council, which represents most large UK home lenders, including the leading banks and building societies, issued its estimate alongside a forecast that house prices will be around 7% lower at the end of this year than at the end of last year.

Nationwide building society also reiterated that it expected prices to fall by a single-digit figure this year.

Michael Coogan, the council’s director-general, said: “In the wake of the credit crunch, 2008 will be remembered as a very weak year in the housing market.”

A spokeswoman for the lenders’ trade body added: “Our rough estimates are that around 100,000 (about 1 borrower in 120) could be in negative equity. For most of the households affected, the amount would certainly be extremely small indeed (not more than a few thousand pounds). And that is only a problem in practice if a household needs to move or has repayment difficulties.”

In a gloomy overall view of the housing market, the council expects the number of property transactions in England and Wales to fall by a third this year, to 770,000.

Gross lending will be around a fifth lower, at £285 billion, and net lending, after repayments by borrowers, will halve to £55 billion. This suggests that many homeowners’ top priority will be to cut mortgage debt rather than either trading up or staying put and borrowing more to finance home improvements.

Among the few crumbs of comfort from the council is their assessment that the Bank of England’s Bank rate will end the year at 4.75%, a shade lower than the current 5%. In a separate survey on Monday, Hometrack will report that house prices fell again in May — the eighth month in a row. Average prices were down by 0.5% over the month, following a 0.6% fall in April. Over the past year, growth has fallen 1.9%, to the lowest level since November 2005.

Hometrack blamed the fall on a “buyers’ strike” and said it was too early to say whether price falls were moderating. “The current trends in the survey indicate that pricing looks set to remain under downward pressure over the coming months,” said Richard Donnell, head of research at Hometrack.

The proportion of asking prices being achieved is still being cut, from 93% to 92.3% over the last month — the lowest level since the survey began in 2001.

The CML also said last week that the number of repossessions and arrears should not rise this year.

Coogan said: “Our forecasts assume some indirect benefits from the Bank of England’s special liquidity scheme beginning to have an effect in the mortgage market in the later part of the year. Over the next few months, lending volumes will get worse before they get better. The market is still very uncertain, but lenders are working hard to ensure that borrowers coming off fixed rates remain on track, that arrears and repossessions are minimised, and that pricing is as attractive as they can make it in a market where they must manage the demand for lending with caution.”

Gross mortgage lending reached an estimated £25.3 billion in April, a 5% increase from March, but for March and April combined, lending was down 16% from 2007 levels.

Last month, Morgan Stanley said UK house prices would fall by 15% over the next two years, forcing 1.2m borrowers into negative equity. At worst, house prices might fall by 25% over the next two years, hitting more than 2m homes.