British house prices to stagnate this year -Reuters poll
* UK house prices seen flat this year, to rise 2.0 pct in 2014
* London house prices to rise 2.5 pct in 2013, 4.0 pct in 2014
* Mortgage approvals seen rising to 63,000 in a year
LONDON, Feb 25 (Reuters) - British house prices will stagnate until next year along with a flat-lining economy and weak pay rises, a Reuters poll found on Monday, although London prices are expected to keep climbing.
The poll of 25 market watchers, taken in the past week, predicted UK house prices would end this year flat, a gloomier outlook than in December, which forecast a 0.6 percent rise. Forecasts ranged from a 3.0 percent rise to a 7.0 percent fall.
In 2014 they are predicted to rise 2.0 percent, unchanged from December, but still well below the current rate of consumer price inflation, last measured at 2.7 percent.
"Everything will hold them back. Weak incomes, low loan-to-value ratios and poor affordability," said Michael Saunders at Citi, who sees prices flat this year and next.
"But central London will continue to do well as it is driven by the weak pound."
Indeed, house prices in London, where top-end real estate is a magnet for overseas investment from Middle Eastern oil wealth and U.S. bankers, are expected to rise 2.5 percent this year as demand in the capital outstrips supply.
London house prices look cheaper in foreign currency after a sharp fall in sterling so far this year - down almost 7 percent against the dollar.
But that 2.5 percent rise would only just keep up with consumer price rises. The poll predicts London house price inflation will accelerate in 2014 t 4.0 percent.
MODEST RISES AHEAD
During a decade-long boom to 2007, average house prices in Britain tripled. The economy boomed along with housing.
But house prices fell at the start of the financial crisis - in some places like Belfast and Manchester very sharply - and have struggled since then, still down around 10 percent.
While suffering nowhere near the decline in the U.S., where house prices crashed by a third or more, it has dented what has long been a bedrock of consumer wealth in Britain.
The poll predicted that it will be some time before the average homeowner recoups those recent losses.
"The long-term outlook for house prices is likely to be one of modest growth at best. Even by 2018 - the last year of our forecast horizon - prices are still projected to be slightly below their 2007 peaks," said Peter Dixon at Commerzbank.
Britain's economy has broadly flat-lined over the last two years and is at risk of sinking into an unprecedented triple-dip recession this quarter.
However, the number of Britons in work hit an all-time high late last year.
OUT OF REACH
The price of a typical British home was 162,245 pounds ($247,700) in January, according to Nationwide, around six times last year's average salary of 26,500 pounds and out of reach of many buyers.
Most say British property is still too expensive. The poll gave a consensus rating of "6" on a 10-point scale where "1" is very undervalued, and "10" extremely overvalued.
That is down from a high of 7 last seen in December 2011.
"Housing is still very overvalued on most metrics, and although employment continues to rise, earnings growth is still very subdued, which is not helping improve housing affordability," said Matthew Pointon at Capital Economics.
The Bank of England slashed interest rates to 0.5 percent nearly four years ago, a boon for those who have managed to get a mortgage, and is not expected to raise them until after next June at the earliest.
The BoE also launched its Funding for Lending scheme (FLS) in August, offering banks cheap finance if they in turn lend on to households and businesses. It said earlier this month there was growing evidence it was helping credit conditions, though it was too early to see an increase in net lending.
British housebuilder Persimmon posted a 52 percent increase in full-year profit on Monday, beating analysts' expectations, saying lending schemes had helped to boost access to mortgages.
Mortgage approvals, used as a guide to future housing market activity, rose to 55,785 in December and are seen nudging up to an average of 58,000 per month in six month's time and 63,000 in a year.
"Mortgage availability remains the key constraint to the housing market. However, there are some signs that lenders are embracing the Government's FLS," Persimmon Chairman Nicholas Wrigley said.
($1 = 0.6551 British pounds) (Polling by Ashrith Doddi and Somya Gupta; editing by Ron Askew)