Prime country house growth is at its slowest level for two years as the credit crunch fuels more stable market conditions, reports Knight Frank in its latest country house index. Prices of country houses grew on average 1.3% in the third quarter of the year, the slowest rate since the end of 2005.

This weak third quarter result means the annual rate of growth has slipped from 10.4% to 9.4% between the second and third quarters.

Best performing were more expensive manor houses with growth of 2.4%, and the average price of farmhouses increased by 1.3%, while the value of cottages rose by only 0.3%.

The South West was the top region, with strong growth for larger properties, hitting 4%.

By county, top performing areas are East Sussex (26.3%), Wiltshire (17.7%) and Cornwall (16.4%), while areas like Mid Wales (6.4%) and the Scottish Borders (5.6%) have room to improve.

Forty-two percent of £5 million plus homes in the south east are now bought by overseas buyers, the highest level on record and well above the 34% figure recorded in September 2006.

Liam Bailey, Knight Frank’s head of residential research, says: ‘Since July, there has been a markedly different character to the prime country house market ? as with the rest of the UK residential market. There has been a significant shift in confidence and activity in the third quarter of the year.’

Mr Bailey adds that the country house market takes a strong lead from the prime London sector. ‘Until July, London was 18 months into one of the biggest booms in its history. The impact of the credit crunch has been to make purchasers in the capital and the prime country house markets take longer over purchase decisions and become more demanding ? they are far more confident now to negotiate over price than they were four months ago.’