Ernst & Young predict values will not reach 2007 peak for five more years

The recent rise in house values is a “false dawn” and the prices of UK homes will not return to their 2007 peak for at least another five years.

This is the message from the Ernst & Young Item Club, an economics forecasting group, in its latest assessment of the market.

The body said the rise in prices seen over recent months was due to a lack of houses on the market and a small number of “cash-rich” buyers. Values are likely to dip again in the first half of 2010, it said.

It added that a sustained recovery was impossible without a recovery in mortgage lending and lending restrictions remained tight.

It said: “The scarcity of mortgage supply and tough lending criteria is making it particularly difficult for first time buyers to enter the market.

“Given that they typically purchase cheaper properties, this will have significant implications for those looking to trade up, clogging up the market and limiting the number of transactions taking place.”

The fear of unemployment would also put people off big financial commitments such as purchasing a house, it said.