Property prices to fall

House prices in London will fall next year but a crash is not predicted, according to a report today.

Analysis by Your Mortgage magazine concludes that increases over the next five years will be at no more than the rate of inflation and prices in 2009 will be, on average, 6.6 per cent higher.

The magazine predicts prices up by about 2 per cent by the New Year but there will be a fall of 3 per cent in 2006 and a virtual standstill during 2007.

It then predicts moderate increases of 4.6per cent in 2008 and 3.1 per cent in 2009.

The fastest growth is predicted for inner boroughs.

The worst performers are expected to be outer boroughs on the eastern fringe, with overall price falls forecastfor Barking & Dagenhamand Havering.

The figures are based on population trends, projected income, employment forecasts, interest rate projections and expected stock and historic prices from the Land Registry.

But a sharper reduction in prices is predicted by other analysts. Ed Stansfield of Capital Economics maintains that a fall of up to 20 per cent is on the way.

He said: "Confidence remains very fragile and overvaluation is now taking its toll, with fewer and fewer buyers now able or willing to meet asking prices.

"With no sign of a recovery in first-time buyers, we expect the falls being reported in some parts to become more widespread this year and next in line with our forecasts for a protracted market correction."

The largest estate agents' website, Rightmove, has predicted that it will take seven years for the market to recover from the 30-35 per cent fall in sales this year. Rightmove also said recovery is dependent on firsttime buyers. Their pay needed to rise enough for them to re-enter the market.

The Council of Mortgage Lenders said the number of first-time buyers was down 29 per cent last year.

Miles Shipside of Rightmove said: "It will take seven years of static house prices and wage inflation to bridge the gap, although a one per cent reduction in interest rates could reduce this to four years."

John Wriglesworth, chief economist for price monitors Hometrack, said: "Activity has picked up but sales remain 30-40 per cent below last year.

"The key reasons are worries about interest rate rises and higher taxes and as long as prices remain too high and sellers refuse to budge, activity will suffer."