Halifax, the UK's biggest mortgage lender, has predicted that the housing market will be flat in 2006. House prices are set to rise by 3% during the year, barely enough to keep pace with inflation, the bank said. A crash would be avoided due to high levels of employment, wages rises and interest rate cuts, the group added. But at the same time,- well known market sceptics - Capital Economics warned that house prices could fall 5% in 2006.

Overvalued
Capital Economics, which had previously predicted house prices would fall by 20% over the next three years, said it still held the view the UK housing market was "fundamentally overvauled." However, the group said it had adjusted its view of the likely scale and timing of the market adjustment. A combination of low interest rates and employment growth would prevent a sudden price correction. Instead house prices would fall slightly and wages would rise, making property more affordable.

Single digits
Halifax's prediction of a small rise in house prices in 2006 ties-in with the view of the vast majority of housing market pundits. The Nationwide, Royal Institution of Chartered Surveyors and property website Hometrack have all said prices will rise in the low single digits. "The UK housing market is set for a period of broad stability... low single digit growth is expected to be the norm across most of the country," Martin Ellis, Halifax chief economist, said.

North-south divide
Next year could see a further narrowing of the gap between property prices in the north and the south of the UK. During the past two years house prices in the north have increased far more rapidly than in the south. Scotland and Northern Ireland are set to see house prices rise the fastest by 7% and 5% respectively. At the other end of the scale, prices in south-west England and East Anglia could be set to stagnate, Halifax said.

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