According to the latest house price index from Rightmove, UK house prices fell by 2.7 per cent in December, leaving overall prices up by 1.5 per cent year-on-year compared to the same period in 2010.

Rightmove predicts that prices will rise by 2 per cent next year, with prices underpinned by a shortage of new sellers. Mortgage availability is expected to remain difficult, with low interest rates continuing to limit repossessions to below 40,000.

The number of property transactions is forecast to remain at 2011 levels, but Rightmove describes the outlook as “uncertain as the Eurozone concerns weigh on home movers' decision making”.

In the longer run, the UK will continue to suffer from a shortage of housing. House building numbers are still failing to keep pace with the increase in the number of households, and the shortfall gets worse every year.

Both the government's new plans to boost house building by easing planning restrictions and the introduction of a mortgage indemnity guarantee scheme have yet to be tested by the market. If the Eurozone economy suffers a major shock and unemployment levels soar, then we may see higher levels of immigration from European workers looking for jobs, putting further pressure on the UK's housing stock, particularly in London and the South East.

Miles Shipside, Director of Rightmove explained: "The market fragmentation caused by the credit crunch means that success in selling now requires a very careful and complex local market analysis. As always it involves location, but the number of mortgage-ready buyers you can attract is now dictated by the type and size of property that you are selling. With all but the most appealing properties, pitching at too high a price and waiting for offers is a route to stagnation. Four years of increasingly dire economic news have also trained consumers' brains to look for stand-out value from day one of marketing.”