House prices set to fall amid cuts

House prices are likely to fall throughout 2011 as potential buyers are expected to tighten their belts in an attempt to cope with deep public sector cuts, economic experts have predicted.

Although property prices increased by 6.4% last year, rising unemployment rates combined with a barely noticeable growth in disposable incomes are expected to cause a setback in the market with prices dropping by as much as 1.7%, the Centre for Economics and Business Research (Cebr) said.

House prices in areas of the country that are most vulnerable to public sector cuts are set to be hit the hardest as the market struggles.

But there is good news for first-time buyers who will benefit from the low prices as well as record low interest rates.

Mortgage lending is expected to remain low next year as demand is muted and households focus on paying down their debt and increasing their savings levels.

But house prices should begin to rise again in 2012 as banks relax their lending criteria further and consumer confidence recovers.

The group expects property prices to rise by 2.3% in 2012, followed by gains of 3.7% in 2013 and increases of 4.7% and 5.5% in 2014 and 2015 respectively.

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