House prices are set to fall 10 per cent in 2009, the Royal Institution of Chartered Surveyors (RICS) has warned.

The drop would bring the total peak-to-trough decline to 25 per cent, from the peak in September 2007.

However, it added that a recent rise in new buyer inquiries suggested that the number of transactions had reached the bottom, forecasting a rise in sales of 10 per cent next year.

Its ‘new buyer enquiries’ series of data has become “progressively less negative for the past six months” and climbed to its best level since October 2006 in November. RICS attributed the rise to both the drop in house prices and the cut in headline interest rates, but said that the bulk of interest was coming from buy-to-let investors on the lookout for bargains.

However, a full-scale recovery is unlikely until banks and building societies resume mortgage lending. The number of mortgages approved for house purchases sank to just 17,773 in November from 20,767 in October, according to the British Bankers’ Association (BBA), taking it down to the lowest since the BBA began compiling the figures in 1997.

Simon Rubinsohn, chief economist at RICS, said: “Lenders are likely to remain cautious in the near term in the absence of any ‘guarantees’ on mortgage backed securities. This, coupled with an increasingly gloomy economic picture, suggests that house prices will continue to decline in 2009.”

RICS also warned that the number of new homes in England will fall woefully short of Government targets after dwindling to less than 110,000 in 2008.

According to RICS, the level of housebuilding in 2008 was lower than in the recession of the early nineties and is set to worsen throughout 2009, with construction expected to begin on fewer than 80,000 homes.

It warned that this supply shortage would leave the industry way behind the Government’s ambitions to build 2 million new homes by 2016 and could cause more havoc in the housing market once the current downturn eases.

Mr Rubinsohn said: “A major concern is the massive reduction in the number of new homes now being built. It is likely that there will be even fewer new starts in 2009, leading to a very real risk that a serious housing shortage will fuel another bout of volatility once the current crisis eases. Crucially, the policies are not yet in place to create a vibrant but sustainable housing market in the future.”

Housebuilders have struggled to start or complete new-build developments designed to house first-time buyers, repossessed homeowners and social tenants, as lenders have pulled the plug on financing in the face of plummeting new-build property values.

Capital Economics forecast that new-build homes will fall by up to 45 per cent from their peak 12 months ago, compared with a forecast of a 35 per cent fall for the rest of the market, amid concern that new homes were drastically over-valued when they originally came to the market.

Increasingly desperate developers have been offering incentives such as price guarantees to coax reluctant buyers out of the woodwork.

Taylor Wimpey is selling some properties with the promise that it will finance a quarter of the price with a ten-year interest-free loan. The builder had to ask lenders for an extension of a test of its debt covenants as it struggles to generate income.

RICS predictions for repossessions were in line with the 75,000 already forecast by the Council of Mortgage Lenders.

Money Central: 10 house price predictions for 2009