LONDON, Aug 6 (Reuters) - British house prices will end this year slightly higher than a year earlier, the Royal Institution of Chartered Surveyors forecast on Thursday, scrapping its previous prediction of a 10 percent fall.
However, RICS, a professional body for property surveyors, said the British housing market would still face significant challenges in 2010 and said there was a risk house prices would slip again next year.
The RICS report follows a series of surveys suggesting the British housing market decline may be tailing off. Mortgage lender Halifax said on Wednesday that house prices rose 1.1 percent in July and halved its forecast for price falls this year to 7 percent.
The evidence of improvement in the housing market comes as the Bank of England is to take a crucial decision later on Thursday on whether to inject more stimulus into the economy.
RICS predicted last December that British house prices would fall about 10 percent in 2009, with risks skewed to the downside, resulting in a peak-to-trough drop of at least 25 percent as a deep recession took hold.
Following a considerable shift in sentiment in the housing market over the past few months, which had seen prices starting to pick up in some areas, RICS said it was changing its forecast.
"The RICS forecast is that the average house price in 2009 Q4 will be slightly higher than in 2008 Q4," it said in a report.
However, this did not indicate a quick return to "boom time," as activity remained very weak by historical standards, it said.
"A return to a more orderly market is still some way off," it said.
Lack of supply has given some support to house prices in recent months and buyer demand has improved, it said.
But further increases in mortgage rates, rising unemployment or prolonged weakness in the economy could all challenge the emerging recovery in the market, it said. (Reporting by Adrian Croft; Editing by Dan Grebler)