Chartered surveyor Savills is forecasting 3% growth in average property prices for 2008 as the market continues to slow. This is higher than the recent forecasts from the Council of Mortgage Lenders and Hometrack, which both predicted a rise of just 1% next year.

‘House price growth has been slowing since the beginning of the year in the mainstream markets as interest rate increases have heightened affordability issues,’ commented Lucian Cook, director of Savills research.

‘To date the effect has been most notable in the Midlands and the north, with markets in London and the south proving to be more robust. We expect this differentiation to continue during 2008 through a period of slower economic growth.’

Cook believes the impact of the credit squeeze is likely to contribute to the slowdown in 2008, as tightened lending criteria will reduce accessibility to mortgage finance and the differential between lending rates and the Bank of England base rate will increase. He also warns that this is likely to impact on the growth of the buy-to-let sector and first-time buyer numbers.

Savills’ average forecast for the country hides some substantial variations. The mainstream London and the southeast markets have forecast growth levels of 5% and 4.5% respectively, whilst for the northeast, the northwest and Yorkshire and Humberside the estimate is just 0.5%.

Scotland is still benefiting from relatively low historic house price growth but a recent reversal of the long term trend of Scots leaving the country, prices are expected to rise at above the UK average, Cook believes. ‘But the Scottish market will not be immune to those pressures affecting the rest of the UK,’ he says.

While the market is expected to slow, Savills is not predicting a slump, similar to that witnessed in the US.

‘Although repossession statistics show steady increases since 2004, they remain low in the context of total transaction numbers and currently only constitute about 2% of stock turnover,’ says Cook.