The fragile economic recovery looks set to disrupt the housing market during 2011 and lead to property price falls, it has been predicted.
The Centre for Economics and Business Research said house prices had risen by 6.4 per cent during 2010, but it said the market recovery would stall this year, triggering price falls of 1.7 per cent.
It said anaemic growth in disposable incomes and higher unemployment throughout 2011 would trigger house price falls, particularly in regions that were most vulnerable to public sector cuts.
But it said affordability for first-time buyers would reach an eight-year high, as house price growth weakened and mortgage interest rates stayed at record low levels.
Mortgage lending is expected to remain low next year as demand is muted and households focus on paying down their debt and increasing their savings levels.
But house prices should begin to rise again in 2012 as banks relax their lending criteria further and consumer confidence recovers.
The group expects property prices to rise by 2.3 per cent in 2012, followed by gains of 3.7 per cent in 2013 and increases of 4.7 per cent and 5.5 per cent in 2014 and 2015 respectively.
CEBR chief executive Douglas McWilliams said: “We expect house prices to grow tentatively over the coming years, given that household incomes are being squeezed and banks are still wary of lending.
“There is currently significant uncertainty in the market caused by the government’s spending cuts and a choppy recovery, which has greatly impacted transaction levels.”