Residential property prices could fall a further 25% in 2009 unless lenders start pumping money into the system to enable first time buyers in particular to get on the property ladder, according to the Centre for Economics and Business Research.
Taking into account last year's 16% decline in property prices, the independent consultancy is now predicting a peak-to-trough fall of 40%.
The slide could, however, be slowed if government measures can increase new mortgage lending volumes to 50,000 a month, up from the 31,000 recorded in December by the Bank of England.
In this case the CEBR expects the average property to see 32% of its value wiped out from the peak of the market in summer 2007 through to the first quarter of 2010.
According to CEBR economist, Benjamin Williamson, current price and interest rate levels could lead to substantially increased activity in the housing market, if lending can be freed-up.
However, if new mortgage approvals remain close to today's levels Williamson warns that the fall in prices could accelerate.
Last month the Royal Institution of Chartered Surveyors reported that although buyer interest is increasing without mortgage finance prices will continue their downward trend.
RICS, the Council of Mortgage Lenders and others continue to call on the Government to implement the recommendations of the Crosby Review and provide guarantees for the mortgage-backed securities that can help generate funds for new lending.
The CML doubts that lower rates in isolation will reverse the low level of transactions or the downward pressure on house prices, especially at a time when the wider economy is in recession and consumers are anxious about their employment prospects.
