Nov. 6 (Bloomberg) -- U.K. home prices probably will fall as much as 6.6 percent next year, reversing an estimated 3.7 percent gain in 2009, as unemployment deters buyers and more properties go on sale, London-based broker Savills Plc said.

Cluttons LLP, a real estate broker also based in the U.K. capital, predicted a 1.5 percent drop in 2010, following a 2.6 percent rise this year. Savills, Britain’s largest publicly traded commercial real estate adviser, said property values won’t return to their 2007 peak until 2014.

Prices rose unexpectedly this year on a shortage of properties available as the number of transactions fell to the lowest in at least 50 years, Savills said. The rally probably won’t last as unemployment rises and banks remain reluctant to increase lending. Cluttons predicts that prices won’t match peak levels until late 2013.

“It’s all about cash, and the true recovery will be credit dependent,” said Yolande Barnes, head of residential research at Savills. She predicted that mortgage lending will be constrained for about five more years.

The brokers’ estimates add to a growing consensus that this year’s price increases may be erased in 2010. In November 2008, Savills predicted an average 11 percent decline this year.

On Nov. 3, Lloyds Banking Group Plc, the U.K.’s largest mortgage lender, said home prices will probably stagnate. Real estate advisers Knight Frank LLP and Jones Lang LaSalle Inc. also predict a drop.

Unemployment Drag

The Brussels-based European Commission said this week that the U.K. jobless rate may peak in 2010 at 8.7 percent as the economy expands just 0.9 percent following a 4.6 percent contraction this year.

“Housing demand is expected to remain depressed, as labor market conditions will affect disposable income,” the European Union’s executive said.

Uncertainty over the outcome of next year’s legislative elections, higher taxes and likely cuts to public spending will also weigh on homebuyer demand next year, Savills said.

Values rose on an annual basis in October for the first time in 19 months, Nationwide Building Society said Oct. 30. The average cost of a home advanced 0.4 percent from September to 162,038 pounds ($269,000), the sixth consecutive monthly rise, it said.

“There’s a danger, particularly in the London market, of overheating,” Rupert Sebag-Montefiore, head of Savills’s residential real estate division, said at a presentation in London yesterday.

Not All Agree

Robert Scarff, managing director of Countrywide Estate Agents, doesn’t agree that prices will fall next year, saying confidence has returned to the market.

“We expect 2010 to build on this, with the current positive momentum transferring through Christmas into the New Year” and then picking up more in the second half, he said.

The higher prices were driven by buyers who don’t depend on mortgages, Savills said. Barnes, the broker’s head of research, compared the U.K. market to “empty supermarket shelves.”

Rising prices and a likely increase of property repossessions as unemployment mounts will bring more homes onto the market, depressing values, said Cluttons. Demand from buyers will be constrained by banks’ reluctance to lend as they repair their balance sheets.

Mortgage approvals, while at an 18-month high, are still 42 percent below the average of the past decade, Bank of England data show.

Bigger Deposits

Lenders require first-time homebuyers to put up deposits equivalent to an entire year’s worth of net disposable income, or five times more than the average since the 1980s, Savills research shows.

As Britain’s economy recovers, reducing unemployment and lifting consumer confidence, demand from homebuyers will probably increase, brokers said.

The first regions to recover will be London and southern England, which will probably see prices return to peak levels in 2012, or two years earlier than for the U.K. as a whole, according to Lucian Cook, a researcher at Savills. Prices of luxury homes worth more than 1 million pounds in central London will probably fall 1 percent in 2010 after a 6.1 percent rise this year, he said.

Luxury home prices in central London had their smallest annual decline in 15 months in October, falling 3.2 percent from a year earlier, Knight Frank said today.

To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net

Last Updated: November 6, 2009 07:57 EST