British house prices are set to continue rising in 2006 but gains will be small as buyers struggle to afford new homes after the property market boom of recent years, a major mortgage lender predicted today.
The Nationwide Building Society said house prices would at worst stagnate and at best rise by 3%over the course of next year, following gains of 2.4% this year so far and 12.7% in 2004.
'We are also cautiously optimistic,' said Nationwide's economist Fionnuala Earley. 'Our expectation is that house price growth will remain firmly in low single digits in 2006 as the economy recovers.'
'With rapid price increases over the last nine years it will take some time for affordability to recover,' she added.
The first few months of 2006 could see some falls in year-on-year prices, Nationwide warned, because of comparisons with strong growth early this year.
A year ago, some economists were saying the UK could be headed for a sharp correction in house prices after an extended period of double-digit inflation and as the Bank of England hiked interest rates five times between August 2003 and November 2004.
But the market seems to have achieved a soft landing and BoE policymakers are counting on a gentle recovery to boost consumer spending which has slowed sharply over the last year.
Nationwide predicted the Bank's Monetary Policy Committee would still cut borrowing costs further on top of August's quarter percentage point trim to 4.5% in order to stimulate growth.
