Property to drop 20 percent in next 2 years

House prices will tumble by up to 20 percent over the next two years, a top economist has warned.

The bleak prediction from Professor David Miles of Morgan Stanley came as the death knell was sounded for cheap mortgage deals.

The average property price in London is £342,000 but that could fall to around £270,000 according to the grim economic indicators.

Professor Miles told a housing conference in the capital that the drop could at least help more people climb on the housing ladder. He said: "I am the pessimistic end , but I don't think it should be seen as the pessimistic end because there are as many gainers as loosers."

But first-time buyers were dealt a blow after treasury officials warned the global credit crunch would mean banks being tighter with the purse strings.

The Treasury Select Committee was told that market was facing more "intense chalenges" than any other time in the past 15 years.

Figures show a home owner with £200,000 mortgage has to pay £460-a-year more as result of the crisis in world markets.

In the meantime there is a visible gap between seller's expectations and buyer's ability to pay.