House prices will continue to fall

Analysts have looked into their crystal balls to predict that house prices will fall 20% in the next two years.

Rising unemployment and spending cuts is keeping demand in check, and as interest rates rise to quell inflation, the higher mortgage costs are a dead cert to add momentum to the slump in property prices.

Paul Diggle, property specialist at Capital Economics, said: 'Prices are trending slowly downwards at the moment, but our view is that this is really the start of the second leg of the correction, and we expect prices to fall significantly further.'

Andrew Brigden, of financial research group Fathom, estimates that house prices are 20- 30%, too high compared with average wages.

'I think the correction will come at some point, even if interest rates stay where they are, but if rates go up, that will hasten it,' he said.

The credit crunch led the average home to lose a fifth of its value between mid-2008 and the end of 2009. While last year it regained half of that lost value, a double-dip is now predicted to take prices back down to below the pre-recession levels.

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