House prices look set to fall further this year, resulting in a peak to trough price decline of at least 25%, according to Royal Institute of Chartered Surveyors' (RICS) housing market forecast.

The on-going caution of lenders and the worsening economic climate is likely to result in a decline in house prices of around 10% over the next 12 months. However, recent RICS housing market surveys indicate transaction activity may have reached the bottom and we could see an increase in sales of more than 10% during 2009.

New buyer enquiries have climbed to their best level since October 2006. The key to turning these enquiries into sales will be the availability of funding. With mortgage approvals currently hovering just above 30,000 per month compared to the 129,000 seen at the height of the most recent boom and now at 64% lower than 12 months ago, the Government needs to secure an adequate supply of mortgage finance for credit worthy borrowers. Although the recommendations contained in the Crosby Review are no panacea for the current challenging climate, they should help ensure some increase in the flow of secured lending.

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Meanwhile, house building is set to continue to shrink throughout 2009. New housing starts for 2008 are unlikely to be much above 110,000, a figure far lower than recorded during the recession of the 1990's, and output is set to plunge to a new low in 2009 with new starts expected to fall comfortably under the 80,000 mark. This figure is well below the Government's target for building two million new homes by 2016 and highlights the risk of yet more house price volatility in the medium term.

(CD/JM)