The CML now expects 175,000 mortgages to end the year 2.5% or more in arrears, compared with its previous forecast of 205,000.
The trade body also expects a total of 39,000 repossessions to occur for 2010 as a whole, compared with the previous forecast of 53,000.
The less pessimistic forecast follows better arrears and repossession figures, as the number of homeowners losing their homes to first charge mortgage lenders fell by 400 in Q2 from Q1 this year, according to CML figures.
Property repossessions fell 5% to 9,400 from 9,800 in Q1, a drop of 17% from the same period a year earlier when 11,800 homes were repossessed in Q2 2009.
The number of mortgages in arrears also fell. At the end of June, 178,200 homeowners were in arrears with the balance worth 2.5% of their outstanding mortgage.
Those with the smallest arrears have recovered more quickly with a marked improvement when the figures peaked in Q1. But the figures for those with arrears totalling 10% or more of their balance remain steady.
The CML said there is still a significant segment of borrowers whose arrears may have been stabilised through lender forbearance or other support, but who cannot climb out of trouble.
These borrower’s precarious finances make them most at risk of tipping into repossession after an interest rate change or drop in benefits, it said.
CML director general Michael Coogan, said: “Mortgage difficulties have so far been contained at lower levels than we expected at the start of the year, and by comparison to the 1990s recession.
“However, the safety net for borrowers is weakened by the prospect of higher interest rates, a possible rise in unemployment, a counter-productive stigma hanging over mortgage payment protection insurance and uncertainty over future debt advice funding.”
He added reduced government support for mortgage payments and mortgage rescue schemes would undermine repossessions support.
“While we don’t want to cry wolf, it seems obvious that the ongoing prognosis for arrears and possessions is far from a healthy all-clear. We hope the coalition government will not risk undermining the chances of extending the welcome trends this year by removing support mechanisms that work,” said Coogan.
