Two-year standstill for house prices

ESTATE agent Knight Frank today warned that the housing market faces two years of virtual stagnation, although top-end properties in London's most sought-after areas can expect further modest price gains.

Defying doom-mongers who have warned the market is on the brink of a crash, Knight Frank said prices across Britain will nudge up an average of 1% in 2005 following 13% gains this year. For 2006, prices are seen rising by 3%.

Million pound-plus homes in the prime central London market - including Kensington, Chelsea, Notting Hill and Mayfair - are expected to outperform the mainstream market, rising 2% in value in 2005 and 4% in 2006.

Liam Bailey, head of residential research at Knight Frank, said: 'The UK mainstream housing market will see negative growth in the first half of 2005. These losses will be offset by positive growth following the onset of the summer market. Despite this recovery, by the year-end we expect prices to stand only 1% higher than at the start of the year.

'Our view is that it is lower priced property which is most at risk of price falls over the next one to two years. The more expensive parts of the UK and the most expensive property types have already experienced price falls in 2002 and 2003.'

Housing market jitters are expected to boost the lettings market as canny homeowners sell up and rent temporarily in the hope prices will fall. Rents in the prime central London market are seen rising 6% in 2005 against 4% this year.