Its report predicted that gross mortgage lending will increase this year for the first time since the banking crisis hit, but growth will be “very marginal” – up from £136bn in 2010 to £138bn.
Datamonitor said that mortgage lending will not reach £150bn until 2013 “at the earliest”.
In addition, it said that it was now “debatable” whether the securitisation market would ever reach the heights recorded in 2007.
Daoud Fakhri, an analyst at Datamonitor, said: “The market has a long way to go, as the initial feeling in 2010 was that gross lending would grow to around £150bn, but instead it fell. In total, between the height of the market in 2007 and 2010, gross lending fell by more than 60%.”
The analyst warned that the key factor holding back growth was the continued lack of mortgage finance, while low consumer demand is also hindering the sector.
Datamonitor noted that lending would continue to be restricted in the immediate future by the reduction in government-backed support schemes and the Basel requirements on capital reserve ratios.
Fakhri said: “The issue of mortgage funding is not a simple one. We believe that the wholesale market is unlikely to recover significantly in the medium term, leaving lenders to rely on retail deposits for mortgage lending.
“The result is a market where mortgage provision is strictly rationed.”
He added: “Further complicating the issue is the lack of significant recovery in the residential mortgage-backed securities market, which was a key factor behind growth before the banking crisis. It is now debatable whether this market will ever attain the heights it reached between 2005 and 2007.”
