House prices could stall completely in 2008 but will continue to see large regional variations, according to Nationwide's house price forecast.
The building society says various economic factors are constraining affordability and a significant slowdown is likely.
Nationwide has predicted total growth in the UK housing market will fall from its current rate of 9.7% to 0% by the end of 2008.
Fionnuala Earley, chief economist at Nationwide, says factors such as a slowing economy, stretched affordability, righter credit conditions and lower demand for buy-to-let will all constrain house price growth.
“The supply-side of the market will still be characterised by widespread housing shortages, in spite of government targets to increase house building.
"These shortages will provide some offsetting support to prices amid the weaker demand environment, particularly in the south of the UK,” she adds.
Affordability pressures are likely to be a major constraint on price growth, according to Nationwide, with house prices having risen in excess of earnings for 11 of the past 12 years.
Earley comments: “For affordability to come back to long-term norms, either earnings growth needs to outpace house price inflation or interest rates need to come down.
“Although we believe interest rates have peaked, they are only expected to come down slowly, as inflation expectations are lifted by high oil and food prices, and the beneficial impacts of cheap imports from China begin to fade.
"For this reason, house price inflation will need to lag earnings growth next year, and this is a key driver of the overall forecast.”
The forecast also predicts relatively strong growth in Scotland of around 4%, while Northern Ireland, which has seen year-on-year growth as high as 40%, could see prices fall by as much as 5%.
But Stuart Law, chief executive of Assetz, has questionned Nationwide's numbers.
"The Nationwide, like most building societies, tends to significantly underestimate house price inflation at the beginning of each year", he says.
"Next year appears to be no different, with today’s prediction of 0%. In contrast, I would expect house prices to increase by 5% in 2008."
Commenting on the buy-to-let market, Law adds: "Buy-to-let demand is strong and with rents rising (confirmed by both Arla and RICS) buy-to-let investors look to make more profit than ever on rental income, particularly with interest rates expected to come down by as much as 0.75% over the next year."
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