House prices set to rise 4 per cent a year until 2015

The UK property market has hit rock bottom and will begin to turn around ahead of Christmas, it is claimed.

But the recovery will be slow rather than a return to boom and bust, according to the Centre for Economics and Business Research.

A separate study published by the Institute for Public Policy Research calls for measures to prevent house price bubbles.

Mortgages should be capped at 90 per cent of property value, it says, with loans limited to 3.5 times household salary.

Reckless lending in the past by banks and building societies, with loans of up to 125 per cent and five times salary, triggered the property surges that have been  disastrous for the economy.

CEBR chief executive Douglas McWilliams said: ‘We think the market is currently close to the bottom for the UK as a whole and there are signs prices will stabilise over the  second half of the year.

‘The main factor driving up prices is the shortage of available housing which has already pushed up rents.’

He suggested London prices rises will remain ahead of the rest of the UK and are forecast to rise about 2 per cent a year faster.

‘But the factors that will ultimately drive up house prices again are the loose monetary policy that will accompany the government’s deficit reduction and  the ability of banks to lend again on  consumer-friendly terms as their own underlying financial position improves.’

Importantly, he added: ‘This should not be confused with boom and bust. We are forecasting a gradual four-year recovery at an annual rate of about 4 per cent.’

The IPPR said reckless lending led to four housing bubbles in the last 40 years.

Under its proposals, a mortgage of no more than £90,000 could be lent to buy a home worth £100,000. At the same time a couple each earning £25,000 could  borrow no more than £175,000.

It also calls for measures to stop small-time speculators entering the buy-to-let market, so artificially driving up prices.

It said deposit requirements on buy-to-let mortgages should be raised and that lenders should ensure that rents cover repayments.