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House prices to 'stagnate'

16/11/2007

Annual house price inflation will remain flat next year, as economic pressures take their toll on the property market, according to a new forecast.

While house prices have been climbing at an average rate of 9.7 per cent this year, annual house price inflation will drop to zero over the course of 2008, says Nationwide.

The mortgage lender, which produces a monthly house-price survey, says a predicted economic slowdown, stretched affordability, tighter credit conditions and lower demand within the buy-to-let market will all impact upon property prices next year.

With interest rates at a six-year high and the ongoing global credit crunch prompting home-loan providers to reassess their lending criteria, upward pressure is being placed on mortgage rates, claims Nationwide.

It says as petrol prices reach £1 per litre disposable incomes are also being squeezed, with the UK's deteriorating economic situation likely to hit buyer confidence in the coming year.

"The strength of the economy was a key support to the housing market for most of 2007," said Nationwide chief economist Fionnuala Earley.

"Yet, as we move into 2008, economic tailwinds are increasingly being replaced by headwinds," she added.

Nonetheless, widespread housing shortages are set to provide some support to property prices over the coming months, particularly in the south of the country.

Interest rate cuts would also give a boost to the housing market, says Nationwide, but stressed such factors were unlikely to prevent a "significant slowdown" in price growth.

Scotland is set to see the largest growth in house prices next year, according to the lender's predictions. Property prices within the region are expected to rise by four per cent, while in Northern Ireland – where house prices have soared this year – annual house price inflation is forecast to drop by five per cent in 2008.

Earlier this week the Royal Institution of Chartered Surveyors (Rics) warned that Britain's residential property market was suffering from its loosest conditions since May 2006.

Its latest monthly housing market survey found that house prices continued to decline in October, with 22.2 per cent more chartered surveyors reporting a fall rather than rise in prices.