The property firm expects the housing market to take a further seven years to return to 2007 price levels, with house prices expected to decline a further 1% in 2013.

Transactions are estimated to rise by just 2% in 2013 and remain below peak levels for the rest of the decade.

The report added that transaction levels have halved in the last five years and are still 35% below the average levels seen in the last two decades.

Gráinne Gilmore, head of UK residential research at Knight Frank, said that first-time buyers and those without a large deposit were struggling most in the current market.

“Some five years after the start of the financial crisis, the housing sector in the UK still does not bear the hallmarks of a fully functioning market.

“House prices have been flat or modestly declining across the UK since 2010. This stasis is underpinned by unusual economic conditions, rather than a genuine equilibrium in the market.

“Those with only a small slice of equity in their property have struggled to remortgage, given that many lenders have scrapped the high loan-to-value (LTV) deals seen before the financial crisis. Instead, lenders in general now lend a maximum of 75% LTV.

“Only a handful of deals are available above this threshold and the most competitive deals are for those people who have 30% or 40% equity.

“Indeed, most homeowners who do not have a 25% chunk of equity in their property must stay with their current lender, and are unable to reduce their monthly mortgage payments by shopping around the mortgage market for a more competitive deal.”