House prices could rise by 10 per cent next year despite economic uncertainty, a major building society has predicted.

Despite a slowdown in the number of sales of million-pound homes, Nationwide believed the strong growth seen this year was set to continue.

It concluded strong sales would continue until next summer although areas such as London and the South East could see a drop in prices.

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

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

The Council of Mortgage Lenders predicted that next year would be quieter after releasing figures showing banks and building societies lent £20.5 billion in November.

"Once again, there is little sign of any let-up in mortgage lending. Nevertheless, we continue to expect a less frenetic housing market next year, with house price inflation returning to more sustainable levels," said Peter Williams, the council's deputy director general.

The report is expected to calm fears of a looming crash in property prices.

Speaking earlier this week, the chancellor, Gordon Brown, dismissed suggestions that a major correction was on the way.

Whilst he predicted a slowdown in growth, Brown said the government did not expect a property crash similar to that seen in the early 1990s.