Boom may be over as rate rises cool housing market

House prices are going off the boil, according to several authoritative reports to be released this week. The surveys are likely to reassure financial authorities that higher borrowing costs are putting a brake on consumer confidence.

Last week, the Bank of England raised the bank base rate for the second time in two months, to 4.5 per cent. The Bank had earlier been taking a cautious approach to rate increases, but recent statistics from mortgage lenders showed that annual price inflation was still running at around 20 per cent. The Bank is assumed to have decided that it needed to take a sterner attitude, and for the first time in four years it raised rates in consecutive months.

This week's reports from the housing market will indicate that caution was beginning to creep into the market even before the Bank chose to move on rates again so quickly. Several mortgage lenders have already announced higher home loan rates in response to last week's base rate rise, and more will follow.

Reports from The Royal Institution of Chartered Surveyors and the National Association of Estate Agents will both say that valuers and estate agents have noticed the first signs of a slowdown.

Internet property search site Assertahome will report tomorrow that confidence has fallen markedly. Asserta's index of confidence in the market will show that, during May, 77 per cent of respondents expected house prices to rise over the next 12 months - down from 84.3 per cent, on average, between January and April. Asserta's survey also shows that awareness of rising interest rates was a key reason for falling confidence.

Another website, which specialises in new properties, is also expected to show a slowdown. The SmartNewHomes demand index is likely to indicate that prices of new homes are rising at a slower pace than in 2003.