Property prices 'will rise by five per cent this year'

The centre for economics and business research said a combination of low mortgage rates and a shortage of new homes being built would push up house prices by 5.3 per cent during the year to average 172,500.

It then expects lower price growth of 3.4 per cent during 2011, followed by a strong rise of 9 per cent in 2012.

But it warned cuts in public sector jobs and very low wage inflation could limit the scope for house price inflation.

Its forecast is also slightly lower than its previous one for the year, of house price growth of 6 per cent.

The group is also predicting average mortgage rates will fall from around 4 per cent now to 3 per cent by the beginning of 2011. It said the drop would be driven by the money markets pricing in the impact of cuts to the Government's budget deficit.

The research also expects the Bank of England base rate to remain at 0.5 per cent for longer than is currently predicted.

At the moment the economic consensus is for the base rate to rise to 2.25 per cent by the end of 2011, but the group thinks it will then still be at 0.5 per cent.

However, it said its analysis suggested the base rate could be temporarily higher if there was a hung parliament, and in the worst case it could rise to 3.5 per cent. But it added the impact of this was likely to be temporary and within 18 months rates would be back where they would have been if a single party had won the election.

Benjamin Williamson, one of the report's authors, said: "A lot has happened to affect the housing market in the past three months but the net effects have more or less cancelled each other out.

"A very cold and snowy winter limited housing activity until well into the spring, an effect exacerbated by the ending of the stamp duty holiday. Then, in the Budget, stamp duty was reformed, with a zero rate on properties below 250,000 in value for first-time buyers and a new 5 per cent rate for properties with values over 1m.

"Yet we have only marginally revised our forecast from a rise of 6 per cent during 2010 to a rise of 5 per cent."

The research follows a study last month which warned potential buyers remained cautious in the face of the upcoming General Election.

Property intelligence firm Hometrack said estate agents were reporting buyers were taking longer to commit to properties.