House prices may fall by up to 10 per cent this year, a leading financial pundit has predicted.

Neil Woodford of Invesco Perpetual, told thisismoney.co.uk that prices are too high and that the average home will cost £18,500 less by the end of the year.

He warned that some areas may be more at risk than others, and said that new-build flats aimed at buy-to-let investors may prove unsellable.

“Although my forecast is for house prices across the UK to fall eight to 10% in 2008, the decline may be much worse in certain areas,” said Mr Woodford, who controls nearly £20 billion of investors’ money.

The prediction is more negative than any of the respected housing commentators, with even the most pessimistic, Capital Economics, forecasting a fall of only five per cent this year.

This may be good news for first time buyers, after the Bank of England revealed yesterday that banks had approved fewer mortgages for the seventh consecutive month during December.