House prices to fall by 10% in 2008

House prices are set to fall by up to 10 per cent next year, representing the biggest full year decline since records began in 1969, according to a sector expert.

The drop is inevitable due to a combination of this year's increases in interest rates and the higher cost of borrowing brought about by global financial uncertainty, warned David Miles, chief UK economist for Morgan Stanley.

However, he claimed that a fall of this degree would not necessarily represent bad news for the UK property market, with current prices proving to be unsustainable and affordability a continuing issue for first-time buyers.

"I don't think house prices falling is in any sense a bad thing. There's a natural tendency for people to view it as bad for the economy, as unhealthy," Mr Miles said.

"It sounds like a big number, but if house prices fell 10 per cent in real terms that would take them back to where they were at the end of last year, or even the beginning of this year,"he added.

Last week the Nationwide revealed that UK house prices experienced their largest fall in 12 years in November, while the number of mortgage approvals fell to a three-year low.

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