Despite recent housing market surveys which show that prices are rising, a Fitch report into the credit outlook for the house-building sector said house prices may fall by 30% from their peak in October 2007.

Fitch also believes that as 66% of UK mortgage borrowers are now on variable rate mortgages, compared with 48% in August 2008, a rise in rates could seriously affect their ability to service existing
mortgage debt.

Jean-Pierre Husband, UK housebuilder analyst at Fitch, said: “A quick and sustainable improvement in UK housing conditions is unlikely. We believe there may a period of stagnation at best, or at worst a double-dip in house prices.”

Howard Archer, chief UK and European economist at IHS Global Insight, said he believed that there would be a house price correction, rather than a crash, in 2010.

He said: “I believe that the recent increases in house prices are artificial. They are being supported by rising demand and a lack of properties on the market. Over the next few years, economic fundamentals will remain poor and unemployment will rise, which will lead to pressure on earnings growth. These factors will cause prices to fall.”

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Ray Boulger, senior technical manager at John Charcol, disagreed with Fitch’s predictions and said house prices will continue to rise.

He said: “While I agree with Fitch that unemployment will continue to rise, I believe that interest rates will stay low in 2010 and feel there are signs of improvement in mortgage availability as there are more deals on the market.

“The double-dip theory would be dependent on a number of factors, such as interest rates rising, and I am not completely convinced by it.”