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As many as a million people could find themselves in negative equity by the end of next year, a report has warned.

According to Citibank's UK chief economist Michael Saunders, house prices face a "grim" 15 per cent drop this year, which would leave as many as 950,000 homeowners losing out.

The report states: "Recent trends in housing activity have been even weaker than our previous gloomy base case.

"With weak demand, tightening credit availability and the unwind of the buy-to-let bubble, we now expect house prices to fall by a total of 15 per cent over 2008 and 2009 combined, versus our previous base case of a 10 per cent drop.

The report states falling house prices are likely to cause the widespread re-emergence of negative housing equity for the first time since the early 1990s, with the biggest impact felt by first-time buyers who bought in 2006 and 2007.

Mike Pendergast, IFA for Cheshire-based Zen Financial Services, said he supported the document's conclusions, blaming certain lenders' policy of lowering loan-to-values for the negative effect on first-time buyers.

He said: "House prices are changing at different rates in different areas. In many case people have borrowed at over 100 per cent loan-to-value.

"It is quite possible that the number of people in negative equity is going to increase. Certain areas where prices have gone up an awful lot in value will be hit the most."