House prices to stagnate in 2008

Annual rates of house price growth are expected to stagnate in 2008, a report has warned.

Mortgage lender Nationwide said that it expects house price inflation to drop from its current annual rate of 9.7 per cent to around zero per cent over the course of the next 12 months.

According to the mortgage lender, a predicted economic slow-down, stretched affordability, tighter credit controls and lower demand within the buy-to-let market will all have an impact on property prices during 2008.

Nationwide added that mortgage lenders were feeling an upward pressure on their rates as a result of the ongoing global credit crunch.

"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. To begin with, the economy's strength forced the Bank of England to increase base rates to a six-year high, which has been feeding into the pricing of mortgages and other types of credit."

A recent report from the Bank of England hinted that interest rates could but cut in the coming months.

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