UK house price growth will plummet to zero next year, Nationwide has forecast.
UK house price growth will sink to zero in 2008 in the face of a significant economic slowdown, according to Nationwide.
As we revealed in The Future Of House Prices, the building society predicts that "economic tailwinds are turning into headwinds" and that by this time next year, the property market will have ground to a halt.
Nationwide cites general economic slowdown, tighter lending conditions, poor affordability and lower buy-to-let demand as the driving forces behind the predicted downturn.
If it turns out to be true, it will be a hefty drop from the current rate of 9.7 per cent growth, and the weakest year for the sector in over a decade.
In its November Inflation Report, the Bank of England warned of a number of risks to the UK economy and signaled that it may soon reduce interest rates from their current level of 5.75 per cent.
Such cuts would obviously come as a relief to overstretched mortgage borrowers. While Nationwide acknowledges that a move of this sort could provide "some support" to price growth, it maintains it is unlikely to prevent a significant slowdown.
Severe housing supply shortages are one factor that should support prices in the coming year. A recent Housing Green Paper acknowledged that the current level of house building is falling short of projected household formation by 38,000 units per year.
The government has committed to increasing the UK's housing stock significantly, but the long-term nature of the project means it will not significantly contribute to next year's housing supply.
The buy-to-let market has been crucial in bolstering house price growth in recent months. However, prospects for potential investors look less positive for 2008.
Nationwide predicts that although fears of a mass sector exodus appear "overdone", buy-to-let fervour will be dampened by poor yields, lower house price expectations and tighter credit conditions, and its contribution to price growth will be limited.
Significant regional variations in house price inflation -- and deflation -- are also forecast. The building society expects Scotland to be the best-performing region, with prices rising by four per cent. Perhaps this isn't surprising; Scotland's house price-to-earning ratio is lower than anyway else in Britain.
At the other end of the scale, Northern Ireland is now the least affordable UK region. House prices have rocketed by over 40 per cent in 2007, and Nationwide predicts this trend will be reversed, with a five per cent price decline in 2008.
Elsewhere in the UK, those regions with more severe supply shortages are generally expected to see slightly stronger price growth.
Nationwide is the latest in a series of organisations predicting chill winds for the property sector in 2008. The Council of Mortgage Lenders and property website Hometrack both believe house price inflation will slow to just one per cent next year.
And consultancy Capital Economics recently predicted an even more dramatic sector downturn, saying that prices were likely to fall by three per cent during both 2008 and 2009.
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