According to King Sturge, UK house prices are set to rise by 3% in 2008 with prime Central London out-performing.

It predicts a market slowdown due to lower numbers of new buyer enquiries and mortgage approvals. The credit squeeze will particularly affect first-time buyers and investor demand, exacerbating affordability constraints.

Nevertheless, investor activity will be supported by a consolidation in tenant demand in the face of weakening first-time buyer activity. According to King Sturge, investors with significant cash reserves may find opportunities to acquire stock at more favourable yield levels than in 2007.

Around 1.4m UK households are expected to come off cheaper, fixed-rate mortgages in 2008 and this represents a significant market risk. King Sturge does not, however, expect the UK market to be as adversely affected as the US, primarily because the UK did not experience such widespread easing in underwriting criteria to the sub-prime sector.

The forecast national house price growth of 3% in 2008 matches the rate seen in 2005. London is expected to produce the strongest regional growth in Britain at 5%, followed by Scotland. Growth in the Midlands, the North and Wales is expected to be weaker at 1-1.5%.

In addition, King Sturge expects the supply of new stock to remain tight as developers’ sales expectations have declined. With no rise in planning permissions, completion levels are expected to be lower than 2007. The company believes there will be no progress towards achieving the Government’s medium term housing target of 240,000 homes per annum.