House prices are already 'fair value' and are fast approaching 'affordable' levels, according to research commissioned by The Daily Telegraph.

The Daily Telegraph/ Lombard Street Research Housing Affordability Index shows that houses have become significantly less overvalued in recent months.

However, households should not expect prices to bounce back as fast as they did in the past, the economic consultancy warned.

The news may reassure homeowners, since a growing number of economists had predicted that prices would drop by as much as 30% or 40% in the coming years. In fact, Diana Choyleva, director of Lombard Street Research, said prices were unlikely to fall much more than 20%, and should stop falling by mid to late next year.

'We think that house prices could bottom out mid to late next year,' she said. 'However, it’s going to be a prolonged adjustment — even after prices hit the trough they won’t recover swiftly or decisively, they will languish at the bottom. It all hinges on how the Government will use its quiet control of the banks.'

Daily Telegraph