The surge in British house prices will come to an end next year as the cost of living crisis and rising borrowing costs put the brakes on what has been a buoyant market for years, a Reuters poll found.

Inflation is running at a 40-year high of over 10% and with energy bills set to rise 80% from October it is expected to rise much further so households are really feeling the pinch.

Adding to woes for potential home buyers needing to borrow money, the Bank of England has already raised interest rates to 1.75% from a pandemic-era low of 0.10% and is not done yet, a separate Reuters poll found. [ECILT/GB]

"Spiralling inflation is leading to a cost of living crunch which in turn has led to a new era of rising interest rates," said Aneisha Beveridge at estate agency Hamptons.

"As a result, we expect house price growth to steadily slow during the remainder of the year and into 2023 when the real impact on households is likely to be felt as interest rates peak."

According to the Aug. 12-30 poll of 21 property market experts home prices will rise 7.0% this year but that pace will slow to 1.0% next year before picking up to 3.0% in 2024. In a May poll prices were expected to rise 2.9% next year.

In London, a magnet for foreign investors, prices were expected to rise 5.0% this year but outperform the national market and increase 2.0% next year. That follows relative underperformance in recent years.

"While affordability pressures are likely to weigh on the mainstream market next year, there could be room for surprise in Prime Central London - particularly if sterling continues its downward trend, making London property more appealing to international buyers," said Hamptons' Beveridge.

The average price of a home is 365,173 pounds ($427,216) and 224,091 pounds for a first-time buyer, according to property website Rightmove, making the dream of owning a home out of reach for many.

Average pay in Britain is only around 30,000 pounds and salary increases are generally not keeping up with inflation, putting getting on the property ladder further out of reach for many.

"We are getting to the stage when young people can't even dream of home ownership," said property market consultant Henry Pryor.

When asked to rate the value of national house prices on a scale of 1 to 10 from extremely cheap to extremely expensive, the median response was 7, matching May's estimate. In the capital it was an unchanged 8.

Responding to another question, prices would need to fall 8.5% to be fairly valued, the median showed, with forecasts ranging from 5.0% to as high as 35.0%.

Yet no-one in the poll predicted such a drop across the forecast horizon and only a few had any decline in their base case scenarios.

(For other stories from the Reuters quarterly housing market polls:)

($1 = 0.8548 pound)