Nationwide forecasts zero house price inflation

The Nationwide Building Society is predicting that annual house price inflation will fall to zero during 2008.

The current annual rate stands at 9.7% but in the coming months affordability issues and tighter lending criteria are expected to continue to have a negative impact on property price inflation.

In addition, forecasts of a downturn in the economy could make 2008 the slowest year for the property market in over a decade.

Prices are already beyond the reach of many first-time buyers and lower price expectations are now evident amongst house purchasers.

Economists are forecasting interest rate cuts from the beginning of 2008 and the Nationwide believes that this prospect, plus a shortage of homes, will provide some support to the market.

However, it does not expect a reduction in interest rates to prevent a significant slowdown.

Buy-to-let demand is also expected to be lower during 2008, as many investors have been priced out of the market and rental yields have been declining over months.

While house price growth is expected to average 0% for the UK as a whole, some regions are expected to perform more strongly than others.

In Scotland, where the house price to earnings ratio is lower than elsewhere in the UK, prices are expected to rise 4%.

In Northern Ireland, which has seen phenomenal house price growth during 2007, a 5% decline is expected.

The Nationwide forecast is along the lines of that of the Council of Mortgage Lenders, which is predicting house price inflation will slow to 1% in 2008.

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