House prices will fall a record-breaking 35 per cent by next autumn, a leading firm of economists warned yesterday.

The collapse will be the biggest fall ever seen in this country.

The claim, from the consultancy Capital Economics, will horrify homeowners who face being plunged into negative equity.

According to the forecast, around £65,000 will be wiped off the value of the average home. At the height of the property boom last year the average home was worth £186,000. By next autumn it will be worth around £120,000.
Capital Economics had originally expected house prices to drop 35 per cent by the end of 2010.

But yesterday it amended this forecast in the light of recent economic turmoil. The consultancy still expects the same fall, but squeezed into a much shorter period.

Prices are then predicted to stagnate for 18 months before a tentative recovery begins in 2011.

Ed Stansfield, property economist at Capital Economics, said: 'The sheer speed of adjustment is causing alarm.'

But he added this may be a good thing as it could provide a boost for the economy.

'While a period of falling house prices will inevitably be painful, we believe that the
quicker house prices return to fair value, the less damage the housing market correction will do to the wider economy,' he said.

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