In the firm’s ITEM Club Report, it was noted that although data suggested a stabilisation in the
housing market, the recent rise in house prices could not be sustained beyond the spring of 2010.

The report warned that price rises were largely a result of the acute shortage of available properties, with many homeowners either trapped in negative equity or reluctant to sell for fear of locking in the losses of the past two years.

The firm said that because the supply of these funds remained limited, prices were likely to dip again in the first half of next year.

Hetal Mehta, senior economic adviser to the Ernst & Young ITEM Club, commented: “Mortgage
lending remains depressed, and with 56% of owneroccupiers having a mortgage, it would be difficult to make a case for a sustained pickup in prices without a recovery in mortgage lending.”

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“However, this would still appear to be some way off. Banks are continuing to restrict the amount of money that they are willing to lend, with them looking to strengthen, rather than expand, their balance sheets.”

The report suggested that prices were likely to stagnate for the next two years, before picking up again gradually from 2011.

Ray Boulger, senior technical manager at John Charcol, agreed with a number of the ITEM Club’s points, but disputed its conclusion on how the property  market would react over the next few years.

He commented: “In my view, the key to house prices will continue to be interest rates and affordability. Our economy is in such a mess that interest  rates are likely to stay low for at least two years,although not necessarily with Bank base rate as low as 0.5% for the whole of that period.”

“I expect house prices to continue rising next year, although there may be a blip early in 2010, after the Stamp Duty threshold increases.”