House prices in the Midlands will edge ahead by just one per cent next year as the long awaited slowdown finally materialises, a property information group predicted yesterday.
Hometrack said a combination of weaker market sentiment, stretched affordability levels and changes to mortgage lending would lead to a "pronounced slowdown" in house price growth and mortgage lending during 2008.
The one per cent rise in the West Midlands compares with 1.2 per cent nationally. Hometrack added that while there would be price falls in some areas, it was not expecting a widespread drop in the value of property.
Richard Donnell, Hometrack's director of research, said: "The greatest casualty of the current slowdown will be property transactions rather than house prices.
"While we expect the annual rate of house price inflation to slow to one per cent by the end of 2008, transaction volumes are expected to fall by 17 per cent over the year.
"Indeed, the next 12 to 18 months will be characterised by a general lack of housing for sale, which will provide a support to pricing, although this will result in much greater price volatility within local housing markets."
In the Midlands after a one per cent rise next year, Hometrack said it anticipated the market to slow, with a two per cent rise over the three years from 2009 to 2011.
This compared with 2.5 per cent nationally.
The group is predicting that house price growth will be strongest in Scotland and Northern Ireland next year with these areas seeing gains of three per cent, while prices will rise by 1.5 per cent in London and the South-east.
But at the other end of the scale prices could fall by 1.5 per cent in Wales and the North East, while the group has pencilled in drops of one per cent in Yorkshire and Humberside and 0.5 per cent in the North West. Hometrack said the mortgage market was facing its most uncertain outlook for many years.
Gary Styles, Hometack's strategy, risk and economics director, said a combination of slowing mortgage demand and tightening credit standards are expected to result in an 18 per cent decline in net mortgage lending in 2008.
"There will be a continued flight to quality by mortgage lenders but arrears and losses in the 'sub-prime' market are likely to be greater than currently anticipated as certain types of borrower struggle to re-mortgage."
Mr Donnell added: "Housing market conditions have certainly turned over the last few months driven by affordability levels hitting a 15 year high and a weakening in market confidence.
"Affordability levels are stretched on most measures and a combination of rising incomes, slower house price growth and falling interest rates are expected to unwind affordability levels to a more sustainable level."
But Mr Donnell said he didn't expect widespread house price falls due to a shortage of housing. He said: "Firstly, there is little evidence of any major increase in the supply of homes coming to the market for sale and this is acting as a support to prices.
"Despite signs of falling demand and weaker market confidence the reality is that the majority of households simply do not need to sell their home."
He said only a quarter of sales each year are by households who actually need to sell, which was likely to increase because of changes in mortgages but not in enough numbers to result in house price falls.
However this increase in housing 'illiquidity' is likely to result in much greater price volatility in local housing markets, warned Mr Donnell.
Earlier this week Capital Economics predicted house prices would fall by three per cent during both 2008 and 2009 as the recent credit crunch exacerbates the current market slowdown.
The Council of Mortgage Lenders expects prices to edge ahead by just one per cent next year, while it thinks repossessions will soar by 50 per cent to 45,000.