Homeowners will have to wait a decade before property prices return to 2007 levels, a leading estate agent said yesterday.

Average house prices are tumbling at a rate of £78 a day and are set to fall in total by 16 per cent this year and 11 per cent by the end of 2009, according to a forecast from Savills. This will bring the average value down from £182,080 in December 2007 to £136,123.

The London-based agent does not expect the market to show signs of recovery for another two years, with a full rebound to 2007 levels not likely until at least 2018.

It cautioned that only buyers with adequate cash will be able to take advantage of cheaper prices in the meantime, because of the lack of availability of mortgage deals.

The proportion of cash buyers is set to grow from 25 per cent today to up to 40 per cent by the end of next year, as investors and owner-occupiers who built up equity during times of strong growth use their spare resources to take advantage of better-value properties during the downturn.

Meanwhile, first-time buyers will continue to be frozen out of the market until they have managed to save sufficient capital, because of the ongoing mortgage drought for those who do not have a substantial deposit. They are now having to save an average £16,720 to get on the ladder, according to the Council of Mortgage Lenders.

Homeowners with big mortgages face similar difficulties because new loans are almost unavailable for those without a large equity stake in the home that they wish to sell. Lucian Cook, director of research at Savills, said: “There will be a bigger differential between the haves and have-nots. The recovery will start with investment from people with equity. First-time buyers will have to spend longer saving up their deposits and will be behind the curve when prices do start to pick up.”

Savills said it had revised its forecast downwards because of the severity of the mortgage drought. In November last year, it had forecast that prices would grow by 3 per cent in 2008. Since then, the mortgage market had dried up, causing bigger than expected price falls as buyers struggled to finance their purchases.

The housing market has come to a virtual standstill over recent weeks with lenders growing increasingly cautious. Home sales plunged to a new low last month, while Nationwide, Britain's biggest building society, reported that its net mortgage lending had fallen by 70 per cent over the past six months.

Estate agents in England and Wales sold an average of only 10.9 properties per firm in the 12 weeks to the beginning of November, according to the Royal Institution of Chartered Surveyors.

Savills said it expects prices to “bump around the bottom” during 2010 before gaining momentum in 2011. It added that prime property in Central London would see the sharpest total falls because of its dependence on the City. Prime properties worth £1 million are falling in value by £493 a day.

Total declines from peak to trough in the capital are expected to reach 30 per cent, but could be as much as 35 per cent if City job losses exceed expectations, Savills said. The Centre for Economics and Business Research estimates that 62,000 city workers are expected to lose their jobs in the next two years.

However, prices in London and the South East are expected to recover earlier than elsewhere, with predictions of a return to the peak by 2014. London rental values are forecast to fall by 7 per cent as a result of falling demand from City workers.

Mr Cook said: “Twenty-five per cent falls in house prices will rapidly restore affordability and this, combined with the prospect of cuts in interest rates, will progressively cause the cost of mortgage finance to fall and will set the platform for recovery. The outlook for the economy and continued constraints on accessibility to mortgage finance indicates that this recovery will not gain momentum until 2011.”

Savills said it expected the Bank of England base rate to fall to 2 per cent in 2009 before rising to 2.4 per cent in 2010 and hitting 4.4 per cent in 2012.

Mortgage rates have remained stubbornly high relative to the Bank of England base rate, even after two cuts of 0.5 and 1.5 percentage points in September and October, as lenders keep their margins high above base rate to shore up their balance sheets. The number of mortgages on the market fell by 15 per cent this week after the latest rate cut, according to Moneyfacts.co.uk.

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