House prices will fall across the South West over the next 18 months as higher interest rates and the global credit crunch take their toll, it was predicted today.

Property will fall by 2.8 per cent in the region between the beginning of 2008 and mid-2009, according to information group Experian.

But overall house prices look set to record their lowest annual growth since the mid-1990s, with the group predicting that the UK economy and housing market will both become direct casualities of the worldwide credit crunch.

It added that a slowdown was already expected as a direct result of the five interest rate rises seen since the summer of 2006, with higher borrowing costs hitting consumer demand.

Andrew Burrell, of Experian's business strategies division, said: "We expect the UK housing market to suffer over the next two years, with some regions experiencing falls.

"Although national house prices have continued to soar against a background of higher interest rates, the current boom has been uneven regionally.

"The latest figures show an exceptionally buoyant market in Northern Ireland and continued strength in Scotland and London, but elsewhere there are already signs of deceleration."

Price falls look set to be most severe in the Midlands, with the group expecting the cost of property to drop by 4 per cent in the West Midlands and 3.7 per cent in the East Midlands.

It has also pencilled in falls of 2 per cent for Northern Ireland, which it claimed would "suffer a hangover" after the "dizzy growth of the recent past", and it predicts prices will drop by 2.8 per cent in the South West.

Smaller price falls of 0.7 per cent are expected in the East, while the cost of property looks set to ease by 0.4 per cent in the South East.

But at the other end of the scale, the group expects prices to increase by 7.7 per cent in Scotland during the period.

In London, where it claims overvaluation is less severe than in the rest of the South, prices look set to rise by 6 per cent.

The group predicts Wales and the North East will both see growth of 3.3 per cent, while prices will rise by 2.1 per cent in the North West, but edge ahead by only 0.8 per cent in Yorkshire and the Humber.

Overall it expects house prices to inch ahead by just 1.2 per cent across the whole UK in the 18 months from the beginning of next year.

Experian said the decline in manufacturing has left the North more reliant on the slower public sector, while global influences, particularly international finance and the City, have stimulated the boom in the South.

But it said that with the credit crunch expected to hurt international demand, and with the financial sector hardest hit by this, the South will fare relatively less well in the short term.

It added that the situation could turn out to be worse than it had forecast if mortgage lenders come under intense pressure to curb mortgage lending, which it claimed could trigger price falls in all regions.

Earlier this week PricewaterhouseCoopers said there is a one in five chance that house prices will fall between now and 2010.

Property website Hometrack and the Council of Mortgage Lenders both predicted that house prices would increase by just 1 per cent during 2008, while Capital Economics forecast house prices would fall by 3 per cent during both 2008 and 2009 as the recent credit crunch exacerbates the current market slowdown.