Unlocking mortgages is key to boosting prices as bargains appear

New Year is the time for predictions but the future of this property market is one of the trickiest and most fickle to forecast.

There is widespread disparity between the most optimistic forecasts - that the market will remain flat - and the most bearish predictions of a further 20per cent fall in prices.

Gloomy suggestions of a "peak-to-trough" fall of 35 per cent are gaining momentum.

Estate agent Cluttons reports that prices in some parts of the capital have already dropped to near the level of the millennium. Of course, for buyers there is a silver lining. Price falls of this order are excellent news for people wanting to get on the housing ladder. The same applies for those wishing to trade up - you may get less for the house you sell but the one you buy will be cheaper too.

The main losers are bullish buyers who over-reached at the height of the boom. Negative equity is again an issue as in the early Nineties slump. But most owners in this situation will sit back and wait for prices to recover.

Cash is king this year, and 2009 is likely to be the year of the property deal, with a growing number of bargains on offer.

"Affordability for first-time buyers improved significantly in 2008," says Martin Ellis, chief economist at Halifax. The ratio of average house prices to average earnings fell to 4.56 from a peak of 5.84 in July 2007.

Property analyst Hometrack says more price falls will put affordability on a par with the early Nineties.

Property is returning to "fair value". But the market is desperately looking for a floor in values, where people can start trading again.

Housing market problems are not due to demand (there is still considerable appetite for owner-occupation), they stem from lack of affordable credit. So the key factor for house prices will be the extent to which the mortgage market is unlocked. Certainly, your home acting as a cash machine is a thing of the past. Spenders are turning into savers. Equity withdrawal has dropped to the lowest level since records began in 1970 as more people pay off mortgage debt.

That may not please Gordon Brown, who wants Britons to spend more to stave off recession, but a period when property is for nesting rather than investing is overdue.