House prices may wait until 2020 to get back

There is a 30 per cent chance house prices will still be at 2008 levels in 2020.

A study by accountants PricewaterhouseCoopers (PwC) points to further house price drops in 2010, no growth in 2011 and then gradual recovery for a decade.

In 2015 house prices are forecast to be "more likely than not" below 2008 levels.

John Hawksworth, head of macroeconomics at PricewaterhouseCoopers, said: "Although the estimated average UK house price overvaluation of around 25 per cent in mid-2007 has now been largely eliminated, our analysis suggests that house prices could still have further to fall over the next year.

"Despite some recent reports of rises, we are not out of the woods yet by any means. It is important for buyers to take a long-term rather than a short-term view."

The analysis sees homeowners aged 18 to 44 are most likely to be hit by house price drops.

However, the report does suggest house prices could pick up again as the housing shortage hits back, mortgage conditions return to normal and "negative memories of the current housing bust fade".

The PwC outlook also predicts the UK economy will contract by 4.25 per cent in 2009 and rise 0.5 per cent in 2010.

In a bid to balance the budget, PwC suggests a fiscal squeeze of over £5,000 per household is needed.

Mr Hawksworth said: "Future governments may face the temptation to relax the monetary policy regime - for example by raising the inflation target - so as to 'inflate away' part of the massive public debt that is building up.

"But this would be likely to be self-defeating in the longer term and, to guard against any such temptation, we would recommend that all major political parties should commit clearly and unambiguously in their manifestos for the next general election not to make any such changes to the UK monetary policy regime."