HOUSE prices have had another strong year according to latest research by Bournemouth-based Nationwide.

This was underpinned by significant economic momentum, ongoing housing shortages and strong buy-to-let demand.

The building society's chief economist Fionnuala Earley commented: "That being said, momentum is now fading, and a number of factors suggest that house price inflation will drop from its current rate of 9.7 per cent to 0 per cent by this time next year.

"The main reasons for this more subdued outlook lie on the demand side of the market, where a slowing economy, tighter credit conditions, stretched affordability for first-time buyers and lower house price expectations appear likely to reduce the level of activity."

But she added that there would still be widespread housing shortages, despite government targets to increase the number of new homes that were built, and this would provide some support to prices, particularly in the south of the country.

The group expects Scotland to be the best performing region during 2008 as it remains the most affordable region of the UK with the average first-time buyer property costing just over four times earnings.

Other areas that will see price gains are London and the South East, where the property shortage will push prices up by around 1 per cent during the year despite affordability constraints.

But it is forecasting price falls of 5 per cent in Northern Ireland after soaring price rises.

Prices are predicted to fall by 2 per cent in the North and North West, while they will slide by 1 per cent in the South West, Wales, Yorkshire and Humberside.

Nationwide added that higher interest rates and house prices were also likely to cool the booming buy-to-let sector, which has replaced some of the demand from first-time buyers in recent years.

It said with lower rental yields, investors had been relying on house price growth to deliver good returns, but with this slowing there was likely to be less interest in new buy-to-let investments.

Property website Hometrack and the Council of Mortgage Lenders have both predicted prices will edge ahead by 1 per cent, while Capital Economics has predicted house prices will fall by 3 per cent during 2008 and 2009 as the recent credit crunch exacerbates the current market slowdown.

Director of Goadsby, Nigel Price is optimistic for the future however and added: "We don't need house prices to go up - we just need people to buy properties. It is a quieter market now but I am a firm believer that correctly priced properties sell. More properties on the market would definitely help.

"House price inflation next year won't be great but I am hoping for a rate reduction prior to Christmas and then one early on in the New Year which might give people renewed hope.

"If the base rate went back to 5 per cent it would be great for all of us," he added.