Capital's property market slump 'will last until 2010'

Professor Patrick Minford, who advised Baroness Thatcher throughout her spell as Prime Minister, said he saw no sign of improved bank lending or a reduction in interest rates being in the pipeline.

The gloomy forecast comes after the Edinburgh Solicitors Property Centre last month reported its first fall in prices in 37 years.

Property firm Atisreal also said the Capital was likely to be hardest hit by any job losses as a result of the takeover of HBoS by Lloyds TSB – which could accelerate the downturn, with more homes becoming available as workers move out of the city.

Prof Minford, a CBE who was also one of HM Treasury's so-called "six wise men" of economic forecasters that advised John Major's government, said: "In the last year or two, all of the regions have come together. Across the UK, everybody is now in the same boat, including Edinburgh.

"We're saying that 2008 and 2009 will be years of continued falls, but in 2010 we should start to see a levelling off."

Prof Minford, now a professor of economics at Cardiff Business School, who advised the Government throughout the last recession of the early 1990s, said: "What is worrying is the credit crunch. It is similar to the difficult conditions of 1990-91, although there are different reasons now.

"Interest rates need to be cut by the Government and pressure has to be put on banks to get them to start lending again."

He made the comments after writing a housing and economy report for Atisreal.

Don Young, director in Atisreal's Edinburgh office, said: "It is difficult just now. There have been declining values because there is no real market."

He added: "Edinburgh has probably been slower to be hit but we are far from immune. If the HBoS deal goes through you'll see a lot of people moving to London or Halifax or wherever else and that will lead to a lot more stock coming on to the market, which will make things worse still."

ESPC figures showed the average cost of a home in Edinburgh fell by 6.5 per cent in August to 201,517. David Marshall, the ESPC's business analyst, said: "We would not expect a return to growth in the short or medium term.

"We wouldn't expect house prices starting to grow again this year or next year."