But top economist says market will stabilise next year

House prices will fall by another 5 to 10 %, before levelling off next year, a respected economist has told a parliamentary committee.

David Miles, visiting professor of financial economics at Imperial College London and chief UK economist at Morgan Stanley, said buyers’ expectations of further price falls were freezing the market.

He told the Treasury Select Committee: “At the moment there is a stand off between buyers and sellers who are not able to agree on an acceptable price. The levels of transaction have fallen drastically.” However, he made “an educated guess” that prices would soon stabilise, adding that a sharp fall in inflation over the next 18 months should help to restore market confidence.

Miles said that a fall in housing prices could help reduce the wealth gap.

The committee also addressed the soaring rate of repossession, which has increased by more than 40% in the last year. The head of research of the Council of Mortgage Lenders, Bob Pannell, denied that financial institutions were attempting to raise funds by repossessing properties. “A number of banks do have very significant wholesale funding obligations that they need to roll out over the next 12 to 16 months. However, each lender is bound by a code of conduct, which promotes forbearance when dealing with customers who have difficulty with their repayments,” he said. Pannell added that repossession levels were worse in the early 90s.