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Inflation to slow for property

House price inflation is expected to drop next year, according to predictions for the market in 2008 from Nationwide. The main reasons for this are a slowing economy, tighter credit conditions, stretched affordability for first-time buyers and lower house price expectations, although housing shortages are still expected to continue.

‘As we move into 2008, economic tailwinds are increasingly being replaced by headwinds,’ said Fionnuala Earley, chief economist at Nationwide. ‘We expect economic growth to fall below 2% next year.’

Average house price growth is expected to average out at 0%, but some regions can expect to show more growth than others. Nationwide expects that Scotland will see the strongest performance in 2008 with year-on-year growth of 4%. At the other end of the affordability spectrum Northern Ireland ? where prices rose as much as 40% year-on-year by the third quarter of this year ? may see some falls to compensate for the disparity between earnings and house prices.

In the rest of the UK, the report says, London will be more subdued than it has been due to lower financial market activity and confidence in the City falling slightly, and the problem of first-time buyer affordability, but points out that severe supply shortages will always support prices in the capital.

‘Prices are likely to be weakest in the Northern regions, where minor falls are expected to occur,’ continues the report.

But a slow year for house price inflation may be no bad thing, concludes the report: ‘If realised, no growth in house prices may come as a disappointment to many homeowners, but must be put in context. House prices have rise very strongly over the past decade and have delivered large gains in financial wealth. From a longer-term perspective, a year of flat house prices will contribute more to the suture stability of the market than a year of 10% inflation and ever worse affordability. Now may well be a good time for price growth to pause for breath,’ said Ms Earley.