Housing market hit by jitters even before latest rate increase

Homebuyers were becoming less confident in the health of the housing market even before the Bank of England ordered its latest rise in interest rate last week, a report shows today.

Homebuyers were becoming less confident in the health of the housing market even before the Bank of England ordered its latest rise in interest rate last week, a report shows today.

In a sign that the Bank's attempts to cool the domestic economy are working, there has been a sharp rise in the number of buyers fearing a price crash.

Almost one in four househunters believe house prices will fall in the coming 12 months, according to a survey carried out last month. This compared with almost one in seven throughout the first four months of the year, according to research by the property website assertahome.

"Housebuyers and sellers have clearly taken note that interest rates are on the up and this has begun to dent confidence in the housing market,' Jim Buckle, the managing director of assertahome, said.

"Thursday's interest rate increase can only accelerate this process. The Bank of England should beware of overly aggressive interest rate rises."

The Bank cited house prices as one of the reasons for ordering the fourth quarter-point rate rise since November, taking the base rate to a 30-month high of 4.25 per cent. But the move was immediately condemned as "unnecessary" by the National Association of Estate Agents, which said the market had started to slow "naturally".

Assertahome said it was "clear" househunters had noticed the recent increases in interest rates. Between January and April, half of the optimists cited low interest rates as a key reason to explain their optimism. In May this dropped sharply to 40 per cent. Meanwhile, the growing minority of respondents who believe prices are going to fall are increasingly blaming rising interest rates, with 70 per cent of the pessimists thinking rising rates will push the market into a downturn compared with an average of 57 per cent between January and April.

The South-east of England has shown the most dramatic drop in confidence and languishes far at the bottom of the league, with just 68 per cent expecting prices to rise in their region. This is less than the national average and far below the bullish Yorkshire and Humberside, where 93 per cent are optimistic about the outlook for the next 12 months in their region.

Some analysts are concerned that households, which labour under a debt mountain of almost £1,000bn, are highly susceptible to rising borrowing costs.