House prices now falling year on year as economists warn credit crunch 'will see 33,000 lose their home'

It warns that property repossessions will top last year's figure by almost 25 per cent as house prices continue to drop.

Capital Economics, a research consultancy, predicts average price falls of 8 per cent this year, and 10 per cent in 2009.

Prices were down by 0.9 per cent in April compared with March, the seventh consecutive month of falls, according to some analysts.

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Borrowers are expected struggle to make their repayments even if the Bank of England continues to cut interest rates.

The Centre for Economics and Business Research suggested that the credit crunch will push many households to the brink.

The think-tank's latest housing prospects forecast says mortgage deals will remain expensive until the financial markets recover.

John Ward, its managing economist, said: "The stark rise in repossessions forecast shows why the Chancellor and the Bank of England are so keen to sort out the problems in the wholesale financial markets.

"Unless or until this tap of mortgage finance starts to flow again, the outcome will be a reduction in house prices and an increase in repossessions."

The Bank of England tried to restore confidence last week with a £50billion move to allow banks to swap their riskier assets for more secure government bonds.

Borrowers have suffered as banks look to rebuild their finances after losing billions on U.S. sub-prime mortgages.

As they become more cautious about lending to each other, the cost of taking out a mortgage has soared.

First-time buyers and those without hefty deposits are being squeezed out of the market.

Remortgaging costs are higher. Figures from the British Bankers' Association show that in March the number of mortgages approved for homebuyers fell to 35,417 - 46 per cent lower than 12 months earlier.

The prediction for 33,000 repossessions this year is still well below the 75,000 annual rate seen in the early 1990s when interest rates were much higher.

The CEBR report predicts the unemployment rate will stay below 3.5 per cent and the housing market will begin to recover in 2010.

It said interest rates might be as low as 3.5 per cent by then. Estate agents are facing lean times with the number of completions forecast to fall by 25 per cent this year.

Last week the National Association of Estate Agents said its members had sold an average of just seven homes each during March, half the figure for the same month in 2007.

It said the "depressingly low" number in a key selling period was due to buyers adopting a wait and see approach in the face of the credit crunch and general gloom in the property market.

A shortage of buyers, particularly young adults, is said to be sucking the lifeblood out of the market and triggering price falls in many areas.

The housing market analysts, Hometrack, said the number of postcode areas showing a decline rose from 28.8 per cent in March to 51.4 per cent in April.

Richard Donnell, the firm's research director, said: "Weak confidence is effectively resulting in a buyers' strike with households sitting on the sidelines and waiting to see how events unfold.

"The factors impacting on the market today are very different from the 1990s when households were effectively forced to withdraw from the market for economic and financial reasons

"The current weakness in demand today is largely confidence driven."

The personal finance website, fool.co.uk, believes there could be a fall of 20 per cent in the coming year.

It believes the average price will come down by more than £40,000 this year - from £196,000 to £153,400.

The website rated the West Country as the most vulnerable region to a downturn. The East Midlands and the South East were also tipped for sharp falls.

David Kuo, the website's personal finance boss, said price falls make it cheaper for owners to buy property further up the ladder.