Average UK house prices are currently overvalued by approximately 5%. Consequently average prices are now not expected to rise until 2010, but are unlikely to fall by more than 4-5% in the interim, according to a fresh report from the centre for economics and business research ltd (cebr).

The report forecasts that annual house price inflation will fall to 4.2% this year from 18.3% in 2004, with two years of falling property values likely. In 2006, the price of the average house in the United Kingdom will fall by 2.8% and again, by 2.2%, in 2007, predicts the report. By 2007, the value of the average home will have fallen to £155,329.

Mark Pragnell, cebr MD said: "We are anticipating a soft market over the next two-or-three years. Fewer homes will sell, and prices will edge down - but they wont collapse."