The value of homes in Britain could slump by a further 20 per cent in the next two years as the number of buyers continues to fall, experts predicted yesterday.

Property values have already dropped by 10 per cent since prices peaked in August last year, wiping £20,000 off the price of an average home, figures from Halifax show.

But Howard Archer, of Global Insight, the economic consultancy, said prices would plummet by a further 20 per cent, or £40,000 on average, before the market begins to recover. “Continued falls in house prices are expected until the first half of 2010, taking the average house price to £140,104, down from £199,600 in August last year,” he said.

Vicky Redwood, of Capital Economics, presented an even bleaker outlook, forecasting that the housing market would not recover until well into 2011.

Morgan Stanley, the investment bank, said that if prices fall by 25 per cent in the next two years, more than two million - or one in six borrowers - would be in negative equity. Prices have been dragged down by a lack of mortgages available to prospective buyers, as lenders, who have struggled to secure funding in the wake of the credit crunch, demand bigger deposits.

Mortgage lending in June, traditionally one of the busiest periods, plummeted by 32 per cent compared with the same month last year, figures out yesterday from the Council of Mortgage Lenders (CML) showed.

Michael Coogan, director-general of the CML, gave warning that the situation was unlikely to improve this year. “Activity during a traditionally busy time of year for mortgages has been muted by funding shortages and, more recently, dampened consumer demand. This picture will continue for the rest of this year,” he said.

This will come as a further blow to households struggling with spiralling food and energy prices. The average family is now nearly £470 a week worse off than this time last year, according to Asda, the supermarket.

Households had a monthly income of about £538 a week after paying tax during June, 3.2 per cent more than June last year, Asda's monthly income tracker shows. But this rise was more than offset by a 6.8 per cent jump in the cost of essential goods such as food, clothes, utility bills, housing and transport, with households spending around £407 a week on these items.

But there was a glimmer of hope for homeowners as Halifax, cut the rates on some of its home loans by up to 0.2percent for the second time in two weeks. This came after other major lenders, including Nationwide, Abbey and Lloyds TSB also cut their rates.

The rate on Halifax's two-year fixed-rate deal for borrowers with a 25 per cent deposit or equity stake in their property is now 6.47 per cent, down from 6.99 per cent last week. This will save a homeowner with a £200,000 loan more than £750 a year.

But despite this, hundreds of thousands of homeowners will still see their mortgage payments soar. Rates are far higher than they were before the credit crunch hit last autumn, despite recent falls in the base rate.

“Borrowers on tight budgets will have to plan ahead to manage higher mortgage payments than they have been used to,” Mr Coogan said. About 1.5 million homeowners will come to the end of fixed-term deals this year.

Three quarters of potential first-time buyers are abandoning plans to get on to the property ladder, a recent survey by Moneycorp, the foreign exchange group, suggested.