HOUSE prices will grow by four per cent in 2005, according to the Council of Mortgage Lenders (CML).

The CML expects gross lending to total £271bn next year compared with £293bn in 2004.

The CML continues to expect a slowdown in the housing market, but believes this will be felt mostly through lower numbers of transactions rather than in any widespread price reductions.

Looking beyond next year, the CML expects a continued slower market in 2006 and 2007. The likelihood is that the housing market is set for stable but slower levels of activity for some time, as the market adjusts from its recent exuberance.

CML Senior Economist Jennet Vass said: "Although our forecasts herald a slower market, there is good news here for first-time buyers over the longer term. Essentially, as earnings grow, houses are likely to become gradually more affordable again.

"Our house price forecasts expect continued subdued growth in prices over the next three years. Although there may be some modest price falls in some areas, we expect national average price growth to remain positive and we do not envisage any dramatic market adjustment.”