House price boom 'over by next year'

Price growth will collapse next year from the current rate of nearly 10 per cent a year to nothing.

That will make next year the worst year for house prices in more than a decade.

The dire warning from the biggest building society comes amid fears of a severe economic downturn, with the turmoil of the global credit crunch biting the British consumer.

House prices in London and the South-East are forecast by the Nationwide to rise by just one per cent against the roaring double digit inflation of recent years.

The values of many homes across large parts of England - mainly in the North but also in the West Country - are even likely to fall.

"A number of factors suggest that house price inflation will drop from its current rate of 9.7 per cent to nothing by this time next year," said Fionnuala Earley, Nationwide's chief economist.

Ms Earley said a number of factors are piling up to bring a chill blast into the housing market.

"There is a subdued outlook on the demand side of the market, including lower buy-to-let demand, a slowing economy, tighter credit conditions, stretched affordability for first-time buyers and lower house price expectations.

"A global economic boom allowed London to benefit from being an international financial centre. But economic tailwinds are being replaced by headwinds."

The Nationwide is calling on the Bank of England to cut interest rates by three quarters of a per cent.

Property website Hometrack and the Council of Mortgage Lenders have both predicted prices will edge ahead by one per cent while Capital Economics has predicted house prices will fall by three per cent during both 2008 and 2009 as the recent credit crunch exacerbates the current market slowdown.