The housing market is on the brink of a record slump, one of the country’s leading experts warned.
Morgan Stanley’s chief UK economist David Miles warned that prices will drop 10 per cent next year.
That would be the biggest full-year decline since records began in 1969.
A drop on that scale could plunge thousands of people into negative equity and recall the worst days of the recession of the 1990s.
Mr Miles, who has advised Gordon Brown on mortgages, said the pain would not end there, as prices could continue to fall in 2009.
Such a slump would come as yet another blow to the Prime Minister, who has founded his claim to office on his record for economic stability and rising prosperity.
The predicted drop will be caused by a combination of five Bank of England interest rate rises and the turmoil in the banking system which is leading to sharp increases in the cost of borrowing.
Only last week Bank of England governor Mervyn King warned that strains in the finances of major banks will force them to reduce the supply of credit, hammering property values.