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Nationwide building society has predicted a slowdown in rising UK house prices for 2008.

A series of interest rate hikes over the past 12 months are being blamed for the downturn in mortgage applications, while the recent turmoil in the world's financial markets is also believed to have impacted upon the availability of credit.

America's sub-prime market - aimed primarily at those who cannot secure credit from the main lenders - was hit by spiralling mortgage defaults this month, causing credit to dry up as investors balked at high-risk debt.

Though the UK's sub-prime market was not directly affected, the tightening of available credit has reduced the ability of lenders to offer attractive mortgage rates.

"If this situation persists, those lenders most dependent on wholesale markets for funding and those with the riskiest books will be forced to pass on higher costs," said Nationwide's Fionnuala Earley.

She added that house price inflation is expected to be no higher than wage inflation next year, which currently stands at just 3.3 per cent.

Up until the recent financial turmoil national property inflation had stood at well over ten per cent, with London's annual rate of increase reaching 23.4 per cent.

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Author:  Joanne McCabe

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