The rate of house price growth slowed from 4-6% to 2-4% between 2016 and 2017 and could go flat by next year, Nationwide forecasts.

The lender has released a review on the 2017 housing market and a rather bleak outlook for 2018.

Robert Gardner, chief economist at Nationwide, said: “Annual house price growth remained in the 2-4% range throughout 2017, in line with our expectations and broadly consistent with the 3-4% annual rate of increase we expect to prevail over the long term, as this is also our estimate for earnings growth over the long run.

“Nevertheless, this marked a modest slowdown from the 4-6% rates of house price growth recorded in 2016. Low mortgage rates and healthy employment growth continued to support demand in 2017, while supply constraints provided support for house prices. However, this was offset by mounting pressure on household incomes, which exerted an increasing drag on consumer confidence as the year progressed.

“The impact of previous policy changes including additional Stamp Duty on second homes, changes to tax deductibility of landlord expenses and lending criteria meant that demand from buy-to-let investors remained relatively subdued.”

He said 2017 had been characterised by price growth shifting from the South-East towards the rest of the country, while London saw prices fall annually for the first time in eight years during the third quarter of 2018, down 0.6%.

London was the weakest performing region for the first time since the third quarter of 2005.

Looking to 2018, Gardner said Brexit developments and the wider pressures on inflation would have an impact on house prices, putting growth at just 1%.

He said: “We continue to expect the UK economy to grow at modest pace, with annual growth of 1% to 1.5% in 2018 and 2019.

“Subdued economic activity and the ongoing squeeze on household budgets is likely to exert a modest drag on housing market activity and house price growth.

“Nevertheless, housing market activity is expected to slow only modestly, since unemployment and mortgage interest rates are expected to remain low by historic standards even if the bank rate is increased modestly.

“Similarly, the subdued pace of building activity evident in recent years and the shortage of properties on the market are likely to provide ongoing support for house prices.

“Overall, we expect house prices to be broadly flat in 2018, with perhaps a marginal gain of around 1%.

“Over the longer term, once the economy regains momentum, we would expect house prices to rise broadly in line with earnings around 3-4% per year, though if the rate of house building fails to keep up with population growth, prices may outpace earnings once again, as they have in recent years.

“The UK housing market has been characterised by significant regional disparities in house prices in recent years and it is not clear how Brexit will impact these dynamics. Much will depend on the nature of the Brexit impact on the UK economy in terms of its impacts on different sectors and the resulting geographic consequences.

“For example, if the financial sector is adversely affected, then the London market is likely to see more of an impact, while if manufacturing firms are disadvantaged, other parts of the country may be more negatively affected, even though valuation metrics appear less stretched.”