Tens of thousands of homeowners who bought during the housing boom face another four years of being trapped in negative equity, according to a new forecast published by the National Housing Federation.

People who purchased a property in England at the peak of the market in 2007 paid an average price of £216,800. But they have been warned they will have to wait until 2014 – when average prices are predicted to hit £226,900 - before they recover what they paid for their home seven years earlier, according to the research.

Independent economists Oxford Economics forecast house prices would increase 22% over the next five years – fuelled by a chronic under supply of new housing.According to the research, house prices will rise 7.5% this year, but will then fall again in 2011 by 3%, before recording a modest increase of 0.9% in 2012.

Homeowners who bought during the peak of the market in 2007 are likely to experience continued negative equity until 2014 – based on average house price figures for England.

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The Federation, which represents England's housing associations, said it feared an entire generation of people would be locked out of the housing market as a result of high house prices. And the chronic shortage of social housing will leave those shut out of the home ownership market with little realistic chance of getting a social home.

The new report, Home Truths 2010, shows the country is in the midst of the worst housing crisis for generations.

Federation Chief Executive David Orr said: "For those who bought at the peak of the housing boom, there's a strong possibility that they will have to wait another four years before their home is actually worth what they paid for it.

"But house prices will inevitably increase in the long term because of huge under-supply of housing. Even though price rises look sluggish for the next few years, affordability is not improving for many low-to-middle income households - as banks continue to restrict their mortgage lending and house prices remain historically expensive in relation to salaries.

"There's a very real risk that an entire generation will be locked out of the housing market for the foreseeable future and people will increasingly look to buy or rent an affordable home instead.

"But the Government's decision to scrap regional house building targets, withdraw funding for new affordable housing schemes and to cut budgets, means the future looks bleaker than ever for millions of people currently stuck on waiting lists.

"Proposed caps on housing benefit payments could also put nearly a million people on low incomes at risk of losing their home – and further deepen the nation’s dire housing crisis.

"We would urge the Government to closely consider the huge human, social and economic cost of failing to invest in affordable housing."

(CD/GK)