The Nationwide Building Society has reported that annual house price growth ended the year at 2.6%, within the 2-4% range that prevailed throughout 2017.

The mutual said this was in line with its expectations and broadly consistent with the 3-4% annual rate of increase it expects to prevail over the long term.

This marked a modest slowdown from the 4-6% rates of house price growth recorded in 2016. Low mortgage rates and healthy employment growth continued to support demand in 2017, while supply constraints provided support for house prices. However, this was offset by mounting pressure on household incomes, which exerted an increasing drag on consumer confidence as the year progressed.

The Nationwide said the impact of previous policy changes (including additional stamp duty on second homes, changes to tax deductibility of landlord expenses and lending criteria) meant that demand from buy-to-let investors remained subdued in 2017.

Robert Gardner, the Nationwide’s chief economist, said: “The significant disparity in house prices across the UK has been a recurring theme in recent years. In this respect, 2017 saw the beginnings of a shift, as rates of house price growth in the south of England moderated towards those prevailing in the rest of the country.

“London saw a particularly marked slowdown, with prices falling in annual terms for the first time in eight years, albeit by a modest 0.5%. London ended the year the weakest performing region for the first time since 2004.

“While regional house price growth rates have converged over the past year, there remain significant differences in affordability, reflecting disparities in house price levels.

“To explore how this is impacting potential buyers we used regional income data to calculate where in the income distribution a prospective purchaser would lie if they were purchasing the typical first time buyer property in each region, with a 20% deposit and borrowing four times their (single) income.

“The picture that emerges is that this ‘typical buyer’ moves up the income spectrum as you move from the north to the south of the country. In Scotland and the North of England, this buyer would lie in the 30th income percentile, while in the South East they would be at the 80th percentile and above the 90th percentile in London (the closest percentile with available data).”

Jonathan Samuels, CEO of Octane Capital, added: “How the mighty have fallen. Not so long ago it would have been inconceivable for London to have been the only region not to have delivered positive returns in a calendar year. It’s been 13 years since London was last the weakest performing region, and the capital will certainly feel unlucky. London, without doubt, has been a victim of its own success. Prices reached absurd highs and it is now paying for its irrational exuberance.

“2018 is likely to be a mirror image of 2017, with the property market held back to low single digit growth by no end of political and economic uncertainty. But longer term, this will be to the benefit of the market as a whole.

“The fact that it takes roughly eight years for the average buyer to save for a deposit, and 10 in London, underlines the affordability crisis many people face. Saving for a deposit, in a low interest rate and wage growth environment, is nothing short of brutal. Prices won’t fall in 2018 because of the continued lack of supply and low cost of borrowing.

“The one real test of demand will be provided by the direction of inflation. Rising living costs can rapidly erode confidence.”