House prices will fall this year

House Prices

A fall in house prices may lead to a weaker economic recovery.

The value of homes in Britain may fall this year and increase slightly in 2012.

UK house prices could fall by 1.7% this year as household earning power becomes weaker, according to the findings of a research organisation.

The Centre for Economics and Business Research (CEBR) has predicted that higher inflation and fewer employment prospects for 2011 mean that the economic recovery will remain fragile.

In turn this may lead to a reduction in house prices and therefore a slower recovery in the long term.

Although CEBR figures show that house prices rose by 6.4% in 2010, the group expects property values to fall this year in areas most affected by public sector job cuts. The price drop would make it easier for first time buyers to purchase a house, however mortgage lending would still remain low as people choose to pay off their debts and make savings in case of a further downturn.

Douglas McWilliams, chief executive of the CEBR, 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”.

He added: “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”.

The CEBR report also predicted that house prices may start to rise again in 2012 by just over 2% as banks begin to relax their lending criteria. By 2015 prices could rise by 5.5%.