The UK property market is unlikely to be significantly disrupted by financial market chaos stemming from the US sub-prime crisis, according to a new report.
The latest Nationwide house price report, published today, argues that the difficulties in wider financial markets are only likely to indirectly trouble the housing market, to the extent that "market jitters in the financial sector affect the economy as a whole.
Fionnuala Earley, Nationwide's chief economist, said: "The US sub-prime crisis has created turmoil in international financial markets, but this is unlikely to have a significant additional effect on the rate of growth of house prices in the UK in the short term."
The survey shows that the rate of house price inflation did rise slightly in August, to 0.6 per cent, but the year-on-year figure declined from 9.9 per cent between July 2006 and July 2007 to 9.6 per cent between August last year and this month.
Land Registry data released on Wednesday for July showed house price inflation in that month to have been just 0.1 per cent, the lowest monthly rise since June 2006.
Nationwide remains confident that house price growth for 2007 will fall somewhere between 5 and 8 per cent as previously predicted.
The forces keeping inflation in check are longer-term, established ones, Ms Earley explained.
"The expected slowing results from three main factors, each of which have been around for some time. First, weaker affordability, as house prices continue to grow more quickly than earnings; second the effect of higher interest rates and inflation on consumers pockets; and third lower house price expectations," she said.
"While it has taken some time for these factors to bite, there are now clearer signs of slower demand in the market reflected in the collapse in new buyer enquiries."
New buyer queries have fallen every month since March this year, while the number of properties on estate agents' books has risen each month.
Describing the current situation as "the most stretched affordability conditions for more than 15 years", David Stubbs, senior economist at the Royal Institution of Chartered Surveyors (Rics), sounded a note of warning.
"A difficult 2008 looms for the housing market, and will be made even worse if interest rates rise to 6 per cent in the coming months," he said in response to the Land Registry data.
An interest rate rise to six per cent has for some time been seen as inevitable by many commentators, but Nationwide identifies a note of hope.
Ms Earley pointed to unexpectedly low July inflation figures from the Bank of England at 1.9 per cent - below the Bank's target - and signs of weakening in the economies of the UK's main trading partners.
"This, together with the softer tone of the last set of MPC minutes, which revealed that most committee members had 'no firm views on whether rates would need to rise further', has led us to believe that rates will now remain at 5.75 per cent," Ms Earley concluded.