The Council of Mortgage Lenders (CML) has predicted that the mortgage and housing markets will remain broadly flat in 2011.

Its prediction are predicated on the UK economy avoiding a double dip but still being part of a process of long-term re-balancing. Public sector spending cuts imply a difficult jobs market in the coming years. And with households also seeking to reduce levels of indebtedness, demand for mortgages may be subdued for some time, the CML says.

It believes is unlikely that the base rate will rise significantly in the short term and it is quite possible that it will remain unchanged at its current level of 0.5% for the whole of next year.

The continuing prospect of low interest rates, and flat or modestly falling house prices, reinforces the likelihood that remortgaging levels will remain low, even though growing numbers of borrowers are coming to the end of introductory deals and reverting to their lenders’ standard variable rate.

Low interest rates will help the vast majority of households to manage to keep up with their loan repayments and so will help keep mortgage arrears and possessions in check, lenders claim.

The CML says the outcome of the FSA’s ongoing mortgage market review continues to be a major and unhelpful source of uncertainty for the lending industry. Firms do not know when the FSA will issue firm rules or whether it will modify its current excessively risk-averse approach. This uncertainty will itself reinforce lenders’ caution.

The lender body expects remortgaging to remain subdued and that first-time buyers will continue to find it difficult to get into the market.

Critically, the CML believes that uncertainty about the availability and cost of mortgage funding will remain. The big issue for lenders next year will be to re-finance existing wholesale borrowing and begin to pay back the very large amounts of funding advanced through official support schemes. However, the prospects of them being able to do this without adversely affecting the market have improved. The amount due to be repaid under the special liquidity scheme by January 2012 has declined from about £180 billion to around £130 billion currently.

Despite a relatively favourable autumn for wholesale funding, the ability of lenders to continue to raise funds through securitisation and the issuing of bonds remains uncertain. The financial crisis in Ireland does not appear to have deterred investors in UK residential mortgage-backed securities, but further crises of confidence in the euro zone may do so, the CML says.