The latest rise in interest rates is likely to accentuate the divide between house prices outside the capital and those in the most sought-after of London postcodes.

The haves (people who are merely rich) and the have-yachts (people who are rich beyond the dreams of avarice) are forecast to continue to drive up prices in Central London, the world’s most expensive residential zone, for the rest of the year.

Growth in Central London could be as high as 20 per cent this year, but elsewhere prices may falter as rate rises begin to bite. Only properties right at the top end of the market will retain their value, according to Yolande Barnes, of Savills, who said that the direction of the market was now all about which rung of the ladder you are on.

The seven-figure country house sector remains immune to more expensive borrowing as those who have already acquired a mansion in Mayfair or Belgravia still want their grand rural retreat.

BACKGROUND

• Will further interest rate cuts boost the housing market next year?

• A guide to the housing market forecasts

• The property market: a bleak future?

BACKGROUND

• All set for slowdown

• Homes in N Ireland rise 54% to London levels

• House prices: top hotspots ... and the coolest

• What do Chelsea and Belfast have in common?

The London property market

BACKGROUND

• Is the property boom finally over?

First-time buyers priced out

Houses will become completely unaffordable for first-time buyers unless many more are built, a national advisory unit says

• Reform of planning rules ‘vital’ to meet growth in demand

• How the mortgage market has changed

• The future of house prices: 10 times pay

BACKGROUND

• Property prices grow at slowest rate in five months

• Buying a house 'will cost 10 times your income'

• How the mortgage market has changed

• First proof of decline in housing market

• Buy-to-let brigade could be the joker in pack

No one is suffering as much as first-time buyers

Lenders are getting more picky, yet property prices are refusing to fall far enough, fast enough

BACKGROUND

• First proof of decline in housing market

• Fresh signs of cooling housing market

• House prices slow despite London surge

BACKGROUND

• Mortgage slowdown triggers house price fears

• Buy-to-let tax shock

• Fall in mortgages raises fears of slowdown

• Signs emerge that UK housing is off the boil

• Interest rates put brake on house prices

End of house price boom is in sight

Societies saw an 8% drop in mortgage approvals last month compared with a year ago, the first such fall since 2005

BACKGROUND

• Nationwide says slowdown may limit price rise

• House prices keep on rising

• Your guide to surviving the rate hike

• The return of negative equity?

Housing costs taking their toll

The question that always accompanies fresh data showing a fast-growing housing market is: are we headed for a crash?

Related Links

• ‘Rise makes a big difference to me’

Michael Fiddes, of Strutt & Parker, said: “There is an imbalance between the supply and demand, so buyers are still paying a premium for the right property.”

Outside the metropolis and country estate hotspots, however, the market’s temperature had already begun to cool before the base rate went up from 5.25 per cent to 5.50 per cent this week. A scarcity of property for sale and strong demand had been the driving forces behind the 10 per cent nationwide average price increase over the past 12 months, but demand was already slackening under affordability pressures. Larger mortgage bills are expected to test the market further.

Some observers believed that the supply problem would have been solved by owners rushing to offer their homes before the introduction of home information packs (Hips). These become compulsory for all sellers in two weeks, unless an eleventh-hour Conservative attempt to halt the scheme succeeds next week. Hips will cost from £300 upwards. Only a few of the agents contacted yesterday by The Times were, however, receiving extra instructions to sell.

Although there is some evidence of burgeoning interest among buyers in towns where values are flat, this enthusiasm will be tested by larger mortgage bills. Some lenders hoisted their standard variable mortgage rates to 7.59 per cent yesterday, causing some aspiring owner-occupiers of modest means to abandon their dream.

The base rate increase is putting the budgets of millions of households under strain; although four out of five recent borrowers have sought the protection of fixed-rate deals, more than half of all homebuy-ers have a variable rate mortgage. Martin Ellis, chief economist at the Halifax, said: “People are now not as well off in real terms, as inflation is in excess of earnings growth.”

The latest survey from Halifax shows that prices rose by only 1.1 per cent in April, the slowest increase this year. Data from Hometrack, the housing statistics group, indicates that prices were unchanged or only slightly higher in more than half of locations in England and Wales.

Richard Donnell, director of research at Hometrack, said: “The average time to sell in Yorkshire and the Humber, for instance, is nine to ten weeks, while in London it is two or three weeks.” He added that the new higher cost of borrowing was even inducing caution among some buyers in London: “People are willing to buy, but they are thinking twice about prices.”

No commentator, however, detected any sign of a severe downturn. Ed Stansfield of Capital Economics said: “There is just a change of tone and mood.”

Seller’s pack

Properties marketed for sale from June 1 must come with a home information pack (Hip) supplied free to potential buyers

Those already for sale can be marketed without the mandatory pack until January next year

Hips must include an energy performance certificate, index, sale statement, evidence of title, local searches and, where appropriate, leasehold information

The cost of the pack will vary, but should cost several hundred pounds; Hip providers set their own prices but some agents have said that they will offer no-sale no-fee Hips

Agents or private sellers who do not provide a full Hip face a £200 fine

For details about the packs, see www.homeinformation-packs.gov

Source: Times database

Explore Property

• Buying & Selling

• New Homes

• Overseas

• Interiors

• Investment

• Gardens

• Cool In Your Code

• Specials

• First-time buyer

Times recommends

• Second homes: credit crunch casualty or money-spinner?
• How I built my own sliding house
• Top 10 incentives for house buyers