The housing market slump could be over as soon as next year if the cost of home loans falls by a further half-point, a leading housing market expert told MPs yesterday.

David Miles, chief UK economist at Morgan Stanley, said that if mortgage rates stayed at present levels, an educated guess from sophisticated economic estimates was that house prices would fall by another 5 to 10 per cent and wipe a further £17,000 off the value of an average home before the market bottomed out next year.

However, Professor Miles, who previously has advised Gordon Brown, added that if a recent decline in the cost of mortgage funding continued, price falls could soon end.

Speaking to the Treasury Select Committee, he said: “If the cost of funding to lenders were to move down half a point, then the 5 to 10 per cent fall could turn into a much smaller number, or not much at all.”

As the latest figures on the state of the mortgage market were released yesterday, adding to fears of a much more severe housing slump, Professor Miles's comments offered some hope to homeowners of an early end to plummeting prices.

However, he also sounded a note of caution over the uncertainty surrounding market predictions. “There are a lot of risks that it could play out worse than that,” he said.

His forecast is more optimistic than those of many other economists, who forecast that prices will slide by up to 35 per cent before reaching the bottom.

In a separate report, Andrew Clare, Professor of Asset Management at Cass Business School, gave an even more dismal prediction, saying that house prices would slide by 40 per cent and that property values would not rise to 2007 levels again until 2023.

Professor Miles's comments came as mortgage lenders reported another dismal month in August, with the number of first-time buyers taking out a home loan plunging to a record low.

Only 15,600 mortgages were approved for those climbing on to the housing ladder in August, down 55 per cent from the same month last year, according to figures from the Council of Mortgage Lenders (CML). In a further sign of the seizure in the mortgage market, the CML said that gross mortgage lending had slumped by 63 per cent to £6billion.

The stalled housing market is also taking its toll on estate agents, who are struggling to sell one property a week. The average agent made just 11.5 sales in the three months to the end of September, the lowest number since 1978, according to figures from the Royal Institution of Chartered Surveyors.

The gloom over the state of the market was compounded when Bob Pannell, head of research at the CML, also appearing before the MPs, admitted that there was likely to be “further upward pressure” on repossessions from next year. Repossessions are set to rise by 50 per cent this year to 45,000, the CML says.

A further decline of 10 per cent in house prices would knock a total of £45,000 off the value of an average home, according to Halifax house price figures, taking the average property price to about £155,000. The average house price peaked at close to £200,000 last August.

Professor Miles added that once house prices had fallen to rock bottom, the number of transactions could pick up “quite sharply” as buyers returned to the market.

“There is a stand-off in many parts of the country between people who have got a house to sell and people who have got mortgage credit and they cannot agree on a price,” he said.

Other official figures, which are seen as a less timely measure of conditions in the housing market, showed a further 2.7per cent fall in house prices in August.

The Department of Communities and Local Government said that values of flats had fallen by 5.1per cent, while terraced properties had dipped by 3per cent, taking the average house price down to £211,410, 3.4per cent lower than in August last year.

Bank of Ireland withdrew its buy-to-let mortgage deals for landlords with less than a 25 per cent deposit yesterday. The lender is only offering two fixed-rate buy-to-let deals from today worth up to 75per cent of a property's value.

The three-year fixed-rate deal has a rate of 6.94 per cent with a 2 per cent fee.

It follows a similar move by Bristol & West, the fourth-biggest buy-to-let lender, which reduced its buy-to-let range on Monday.

Last night Bradford & Bingley, the nationalised lender, which specialised in buy-to-let deals, confirmed that it was passing on the full half-point base rate cut to borrowers on a variable rate.

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