Property market set for a slowdown next year

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by Kay Murchie

The Nationwide building society has warned that property price growth will grind to a halt in 2008 as the market observes a ‘significant slowdown’.

The tightening of lending criteria, higher interest rates and a slowing economy are to blame.

It is anticipated that annual house price inflation in the UK will collapse from its current level of 9.7% to 0% by the end of 2008.
The building society is expecting large regional variations in the next year. It is expected that Scotland will perform the best with prices rising 4%. Northern Ireland has been experiencing price booms of 40% plus year-on-year, prices here are expected to fall by 5%.

Fionnuala Earley of Nationwide said the ‘momentum’ that had kept prices strong in 2007 was now fading.

Furthermore, Nationwide is also expecting a slowdown in the buy-to-let market. Ms Earley explained that poor yields, lower house-price expectations and tighter credit conditions are all likely to take some froth out of buy-to-let and limit its contribution to price growth.

Nationwide believes that further interest rate cuts, together with the continuing shortage of housing, could provide ‘some support’ to house price growth but are unlikely to prevent a significant slowdown.

In its quarterly Inflation Report last week, the Bank of England said it had become more concerned about the slowing pace of the economy following the turmoil in the world’s credit markets, comments that analysts have said point to lower interest rates over the next few months.

Hometrack, the property website, and the Council of Mortgage Lenders have both predicted that house prices will rise by 1%. However, prices will fall by 3% during 2008 and 2009 according to Capital Economics.