The housing market is set to lose momentum in the next 18 months as higher mortgage costs and a weakening economy weigh on demand, according to forecasts from one of the UK’s longest-established economic forecasting groups.

The Item Club says house price growth is set to slow sharply. Its latest outlook forecasts prices will rise by just 1.1% this year, followed by growth of only 0.7% in 2027. It is compared to 2.7% last year.

Matt Swannell (pictured), its Chief Economic Adviser, told The Times: “An economy that’s under pressure will cause the housing market to lose steam.

Brake on demand

“Rising living costs and higher joblessness will prove a brake on housing demand for the rest of this year and into next.”

Swannell added that the British economy is expected to “flirt with recession” later this year.

The slowdown is expected to vary across the country, with a 0.1% fall in London house prices this year, but growth of more than 2% in the North East, North West and Yorkshire.

The era of London driving the housing market is on hold.”

“The era of London driving the housing market is on hold,” says Tim Lyne, Economic Adviser to the Item Club. “High prices, weakness in the flat market and landlords leaving the sector are weighing on the capital, while more affordable regions in northern England continue to outperform.”

The warning comes as a number of key indicators show the housing market is cooling. RICS has reported declines in both buyer inquiries and agreed sales, while Rightmove recently recorded its largest June asking-price fall in 14 years.