House prices could fall by a further 5 to 10 per cent before the market bottoms out, a leading economist told an influential committee of MPs today.

David Miles, Visiting Professor of Finance at Imperial College Business School in London, said that the property market should stabilise once house prices lost 20 per cent of their value from the peak of the market last summer, which would translate as a further decline between 5-10 per cent.

Appearing before the Treasury Select Committee, Professor Miles, who has advised Gordon Brown, as Chancellor, on the mortgage market, said that once this happened, the number of transactions could pick up again “quite sharply”.

He added that if mortgage rates fell by another half a point, then any further falls could be minimal.

This came as Bob Pannell, of the Council of Mortgage Lenders (CML), who was also appearing before the Committeegave warning that repossessions could rise further next year as unemployment levels rose.

He said that repossessions were set to rise by 50 per cent to 45,000 this year.

But he said that the current expectations of further house price falls among home buyers, coupled with the lack of mortgage finance, made it difficult to asses when prices might hit rock bottom.

“There is a stand-off in many parts of the country between people who have got a house to sell and people who have got mortgage credit, and they cannot agree on a price," he said.

Professor Miles's assessment of the market is more optomistic than other experts.

Estate agent Knight Frank said yesterday that it expected house prices to fall to the same levels as 2003, leaving more than two million people in negative equity.

It said the average house prices would fall a further £45,000 to £140,687. The average house price peaked at nearly £200,000 in August last year.

The lack of mortgage finance in the market was highlighted today as the Council of Mortgage Lenders said that the number of loans advanced to first-time buyers fell by 55 per cent in August compared to the same period last year.

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