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Nationwide Predicts Slowing Market

A report by Nationwide this November has predicted that house price inflation may drop from the current rate of 9.7% to 0% by this time next year but there may be benefits for home-owners and first time buyers.

A slower economy, stretched affordability, tighter credit conditions and lower buy-to-let demand are all expected to contribute to falling house price inflation.

With interest rates driving mortgage payments towards an all-time high as a percentage of take home pay (particularly among first-time buyers) and rendering rental returns on buy-to-let property less attractive, the market is expected to grind to a halt by the close of 2008.

However, it is not all bad news. Though the current situation will see a slowing in house price inflation, it has also been suggested that a slowing economy may clear the way for the MPC to cut interest rates, providing some relief for overstretched homeowners.

And while the buy-to-let market may experience limited growth over the coming year, reports of a mass exodus from the market have been termed 'an exaggeration'. The growth in the property market is largely due to buyers investing in property to provide income after retirement following a loss of confidence in company pension schemes.

As long-term investors, these new landlords are unlikely to leave the property market quickly. Fionnuala Earley, chief economist for Nationwide, says, "Even with only modest house price growth, those in it for the long-haul can expect satisfactory returns."

Finally it is possible that supply pressures may provide upward pressure on prices. The UK has a current annual shortfall of 38,000 units of property and though the government has undertaken to improve the situation by 2016, this will not alleviate shortages in 2008.

Earley concludes that while 0% inflation is the best estimate of Nationwide, having taken into consideration all present factors, this slowdown may be no bad thing for the housing market. "No growth in house prices may come as a disappointment to many homeowners, but must be put in context. From a longer-term perspective, a year of flat house prices will contribute more to the future 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."