According to lender Nationwide, the mortgage market will shrink by 80 per cent this year and property sector will not stabilise for another two years.
The lender added it expects house prices to fall for another 12 months, at a rate of between one and 1.5 per cent per month.
Nationwide's chief executive Graham Beale said: "Reducing prices will improve affordability, which should bring about a recovery in the first-time buyers' market."
"Rate cuts will help to minimise payment difficulties and alleviate payment shock."
The latest figures from the Royal Institution of Chartered Surveyors (Rics) show that average sales are continuing to fall with London estate agents the worst-affected with six sales last month compared to an average of 16 in the north-east.
Nationwide also reported that the number of repossessions it has seen in the last six months is 300, more than double the number in the same time period last year.
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