Property prices in the UK are set to drop by around 5 per cent next year, according to a leading national firm of estate agents.

Knight Frank said that its prediction for 2012 was that house prices would fall by some 5 per cent and leave overall prices at 15 per cent below their peak level in 2007. The company went on to say that it did not believe that there would be any return to the peak levels enjoyed four years ago until at least 2018.

Speaking to Mortgage Strategy magazine, Knight Frank’s head of UK residential research Grainne Gilmore said that the likelihood was that the UK economy would shrink further in 2012 with a knock-on effect on the British property market.

“This ongoing economic weakness, lacklustre earnings growth and the ramping-up of public sector spending cuts will take a toll on the housing market over the next 12 months,” she said, adding that next year’s 5 per cent fall in prices was part of a medium-term trend.

Lower house prices may, of course, be beneficial to many people seeking to acquire mortgages next year – especially first-time buyers. Ms Gilmore did stress, however, that the Bank of England’s ongoing commitment to low interest rates have kept house prices more buoyant than they might have been, and this policy will also help to limit further falls in property prices.

Her prediction was contradicted in an alternative report, by the National Association of Estate Agents (NAEA). The association said that it believed that next year will be notable for the stagnation of house prices, alongside a “gradual recovery” in the UK property market.

NAEA chief executive Peter Bolton King said: “I don’t believe that we will see a significant fall in house prices over the next 12 months as some have feared.”

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