House prices are set to rise by one per cent in 2008, the Council of Mortgage Lenders (CML) has predicted.

Currently, the organisation estimates that house prices will have risen by seven per cent by the end of this year with the number of properties sold set to drop from 1.17 million in 2007 to 1.01 million in 2008.

Michael Coogan, the director general of the CML, said: "The housing and mortgage markets are facing their most challenging period since Labour came to power a decade ago.

"Luckily, the credit crunch occurred at a time when the UK economy was robust, but even so the effects on the financial sector are significant, and the mortgage market is not immune from them."

Although the CML stressed that given the recent economic turmoil, making predictions about the future is "an even more uncertain process than usual", Stuart Law, the chief executive of property investment firm Assetz, suggested that prices would increase by more than the CML estimate.

"To suggest that house prices will rise just one per cent in 2008 represents an overly cautious approach… I would predict a more realistic house price increase of five per cent in 2008, given the continuing supply/demand imbalance."