Annual house price growth in the UK will slow to 5 per cent, from 8.3 per cent, by the end of 2022, property website Zoopla has predicted.
It will become more in line with the long-term average by the end of this year as inflation pushes mortgage rates up and home buyers become more cautious, it said.
The Bank of England is expected to raise interest rates this week.
The average UK house price has increased by 8.3 per cent annually, pushing the typical property value to £256,000, according to Zoopla’s index for June.
This growth was well above the five-year average of 4.3 per cent.
Many recent housing market reports have shown house prices continuing to hit record highs, despite the tough economy.
On Tuesday, the Nationwide Building Society said annual UK house price growth accelerated slightly in July to 11 per cent, from 10.7 per cent in June. House prices increased by 0.1 per cent month on month — the 12th monthly increase in a row.
The average house price in July was £271,209, based on its calculations.
As the cost-of-living crisis tightens its grip, Zoopla said it expects the effects to ripple through to the property market towards the end of 2022 and into 2023.
Rising mortgage rates are also expected to dent housing market demand.
However, while demand for homes has slowed this year, Zoopla said that it remains above the average when looking across the past five years.
Zoopla’s recent research indicated that changing working habits could help to fuel some demand in the market, with people working from home being particularly likely to have expectations about moving house.
It also suggested that the departure of some older people from the labour market during the coronavirus pandemic may trigger some house moves, with retirement often being a major factor in the decision to downsize and/or relocate.
In some instances, the cost-of-living pressures may be boosting the desire to move, to save on running costs and find better value for money, in turn supporting levels of demand and market activity, the website said.
By the end of the year, house prices are expected to be rising by 5 per cent annually, according to Zoopla.
It expects 1.3 million sales completions in 2022 — 100,000 higher than it had forecast.
Richard Donnell, executive director of research at Zoopla, said: “The ongoing impact of the pandemic continues to support a desire to move among home buyers.
“This is a big reason why the market is not slowing as fast as some might expect and demand remains for sensibly priced homes, especially in more affordable areas.
“The housing market is not immune from higher mortgage rates, which we are starting to see increase quickly.
“Buyer interest is expected to slow over the coming months as people tighten their belts and spend with more caution, which will see price growth weaken further.
“While we don’t expect current trends to lead to a marked drop in house prices next year, buyers will become more wary and it is important sellers are realistic when pricing their homes to sell.”
Alice Haine, personal finance analyst at investment website Bestinvest, said the housing market continues to defy the wider economic gloom affecting the UK economy.
“The slight increase in annual house price growth goes against the mood in the rest of the economy as households contend with runaway inflation, rising interest rates and higher energy bills,” she said.
“While the 0.1 per cent uplift in monthly growth marks the 12th successive monthly increase, the figure is modest when compared to some of the larger monthly jumps that became a feature of the pandemic.
“This adds to the tentative signs that Britain’s housing market is starting to cool, indicating that the volley of blows hitting the wider economy might finally be taking a swipe at house prices.”
Richard Davies, managing director of estate agent Chestertons, said: “Although we would normally expect the market to slow down towards the summer, we are seeing a continuous uplift in buyer registrations.”
