Nationwide has warned that house price inflation is set to plummet to zero next year.
The Bank of England quarterly inflation report last week said that two interest rate cuts will be needed next year in order to stem an economic slowdown. The bank’s forecasts show that inflation would fall well below its 2 per cent target in two years time if interest rates remain at the current level but inflation is likely to remain above its target for the whole of next year.
In its own forecasts for next year, Nationwide says a slower economy, stretched affordability, tighter credit conditions and lower buy-to-let demand will hit house prices.
The company says that although interest rate cuts and tight supply will provide some support to price growth, it is unlikely to prevent a significant slowdown.
Chief economist Fionnuala Earley says: “House prices recorded another strong year in 2007, underpinned by significant economic momentum, ongoing housing shortages and strong buy-to-let demand.
“We forecast house price growth of 5-8 per cent in December last year and, with two months go, it looks like the middle to upper end of this range will be achieved. The supply side of the market will still be characterised by widespread housing shortages, in spite of Government targets to increase housebuilding.”
Assetz chief executive Stuart Law says: “Nationwide, like most building societies, tends to underestimate house price inflation significantly at the beginning of each year. Next year appears to be no different, with its prediction of 0 per cent. In contrast, I would expect house prices to increase by 5 per cent in 2008.