Savills is forecasting house price growth of just 2% nationally next year, with the London, South-east England and Scottish markets expected to perform the best.

House price stagnation is likely to make 2005 a difficult year for housebuilders, said Richard Donnell, director of Savills’ research division. “Developers are facing little price growth and more cost issues,” he said. Cost issues include rising build costs and local authority demands for high levels of affordable housing on some sites.

Although the going is set to get tougher for housebuilders, Donnell stressed that the slowdown marked a return to more normal market conditions. “Armageddon is not around the corner. We’ve had an abnormal market, driven by the lack of supply. People have to get their head around what a normal market is. Price growth of about 5% is normal,” he said.

Those parts of the country that perform best are likely to be buoyed by continuing shortage of housing supply. Lower priced properties, specifically one-bedroom flats and smaller houses, are likely to be in greatest demand. This could leave the many housebuilders developing large schemes of two-bedroom apartments in urban centres finding it harder to make sales.

Savills reports that despite the attention focused on highly priced properties in the south of England, 80% of all residential sales in the region last year were for homes worth less than £200,000. “There is a demand for housing, but is it is a question of at what price,” said Donnell.