* UK house prices seen up 0.6 pct next year, 2.0 pct in 2014
* London house prices to rise 1.0 pct in 2013, 3.0 pct in 2014
* Mortgage approvals seen nudging up
By Jonathan Cable
LONDON, Dec 17 British homeowners will have to wait a long time before they recoup losses from the last few years on their properties as a weak economy and high unemployment keeps demand in check, a Reuters poll showed.
London house prices, however, will continue to outperform as the capital keeps drawing strong demand from overseas investors.
The poll of 28 market watchers, taken in the past week, predicted that UK house prices would rise 0.6 percent in 2013, having dropped by the same amount this year. A 2.0 percent rise was forecast for 2014, medians showed.
That marks an improved outlook from a poll taken three months ago, which predicted a flat 2013. Average prices have fallen almost 12 percent from a peak in late 2007, according to data from mortgage lender Nationwide.
"The housing market looks set to remain in the slow lane in 2013. The short-term economic outlook remains poor and this is expected to overshadow the housing market throughout most of next year," said Gary Styles at Hometrack, a property analytics business.
London house prices are set to rise 1.0 percent next year and 3.0 percent in 2014, according to a smaller poll sample.
"London is a little island of prosperity and it really is hoovering up Chinese, Arab and Russian buyers and I can't see that is going to change. The London housing market is going to continue to be a bright spot," said Tony Williams, an independent analyst.
Britain's economy jumped out of its second recession in four years in the third quarter but growth in the coming years is expected to be tepid at best. Unemployment held at 7.8 percent in October but is seen averaging 8.3 percent in 2013.
A small majority of poll respondents, 14 out of 25, said prices still had some way to fall before starting to rise later next year. The median of these forecasts suggested a 2.0 percent drop from here, but the most pessimistic forecaster said they would plummet another 40 percent.
House prices more than tripled in the 10 years to 2007 but that bubble has at least partially burst.
The average price of a home was 163,853 pounds ($264,100) in November, according to Nationwide, around six times last year's average British salary of 26,200 pounds and out of reach of many buyers.
The poll said British house prices were still a little overvalued in comparison with economic fundamentals, assigning them a consensus rating of "6" on a 10-point scale where "1" is very undervalued, and "10" extremely overvalued.
Despite this, British housebuilders such as Persimmon and Barratt Developments have been enjoying bigger profits as they build on land snapped up cheaply during the 2008 housing crash, sending their share prices rocketing.
Berkeley Group declared its first dividend since 2008 earlier this month after strong profit growth.
The company benefits from reliably high property prices in its core London market, one of the world's busiest financial centres where demand nearly always tends to outstrip supply, despite broader economic instability.
Mortgage approvals, used as a guide to future housing market activity, are only expected to creep up from current levels after in October hitting their highest level since January, at 53,000 per month.
The poll showed them at 55,000 in six months' time and 60,000 in a year - around half their average level in 2007 but an improvement from the last poll. Banks have been reluctant to lend, imposing harsh conditions on new mortgages.
The Bank of England launched its Funding for Lending scheme (FLS) in August, offering banks cheap finance if they in turn lend on to households and businesses, aiming to boost the economy in ways that the central bank's quantitative easing bond purchases have failed to.
British banks and building societies drew down 4.36 billion pounds from the FLS programme in its first two months, in what analysts said was a moderately encouraging start.
"It's mortgage lending - until that problem sorts itself out I can't see anyway that there will be an improvement. FLS will help a little bit but I don't think it will have enough of an impact," said Rachael Applegate at Panmure Gordon, a brokerage.
"There is an underlying demand but it is people's ability to borrow."
But those able to secure financing have benefited from the BoE holding interest rates at just 0.5 percent for more than three years. It is not expected to move them until July 2014 at the earliest as it struggles to kick-start growth (Polling by Shaloo Shrivastave and Ashrith Doddi; Editing by Susan Fenton)