Weak employment prospects, the rising cost of living and pay freezes across the UK are likely to contribute to the real estate market declining slightly over the course of this year, the Centre for Economics and Business Research (CEBR) claims.
The body has forecast that residential property prices in the UK will fall by around 1.7 per cent by the close of 2011 before starting on the road to recovery the following year.
According to CEBR, the worst affected regions are likely to be the ones where the most severe government cutbacks take place, with local home values taking a hit as a result.
However, despite the fall in prices occurring this year, the organisation has forecast that growing consumer confidence coupled with a relaxation on lending criteria from banks is likely to have a positive impact on the UK market in the medium to long-term.
Douglas McWilliams, chief executive of the CEBR, said: "We expect house prices to grow tentatively over the coming years, given that household incomes are being squeezed and banks are still wary of lending. There is currently significant uncertainty in the market caused by the government's spending cuts and a choppy recovery, which has greatly impacted transaction levels."