The housing boom is set to slow next year but property prices will still increase by double figures, a building society has predicted.

Nationwide expects house prices to rise by ten per cent during 2003, well down on this year's leap of about 25 per cent.

The society said it expected the market to remain strong for several more months, before slowing in the second half of the year.

But it added certain hotspots, particularly parts of London where affordability had become stretched, could see some price falls, although it was not expecting sustained falls across other areas.

Alex Bannister, Nationwide's chief economist, said: "2002 was a phenomenal year for the housing market, with the highest sales and price growth since the late Eighties.

"The lowest interest rates for almost 40 years and the lowest unemployment rate for 27 years helped boost demand for property."

Nationwide expects interest rates to rise to 4.75 per cent by the end of next year, which, combined with relatively modest earnings growth and increases in National Insurance contributions, will slow the market.

It added consumer confidence was also likely to be affected by further high-profile job losses and a realisation that debt was not being eroded as quickly as it had in the past.

However, the society warned if consumer confidence did not weaken it was not inconceivable that house prices could rise by another 20 to 25 per cent in 2003, which would "significantly" increase the likelihood of price falls in subsequent years.

Nationwide said it was also possible that house price growth could slow sharply during 2003 and grind to a halt in early 2004 if there was a further rise in unemployment.

Overall, the society thinks it most likely the market will slow gradually and prices will rise by ten per cent next year.