SO FAR, it’s all turning out almost exactly as expected; there are few surprises. The pace of growth in the housing market may have taken longer to slow than all the experts predicted at the beginning of the year. But interest rate increases are dampening the formerly irrepressible optimism of buyers – especially those contemplating more onerous repayments as the super-discounted fixed-rate loan deals taken out in the summer of 2005 expire.

But no forecaster is blessed with second sight, which means there is uncertainty as to how the story could unfold next. The most diverting feature of past months has been Central London’s upward spiral: values of houses surged by nearly 40 per cent, according to Savills. Some buyers of these Chelsea mansions are partners in firms in the lucrative private equity sector and thus permitted to pay tax at 10p in the pound on some of their earnings.

There may now be a crackdown on this concession: comparisons have been drawn between the fiscal boon enjoyed by these fortunate few and the far higher rate of tax paid by the people who clean these moneyed individuals’ palatial workplaces and homes.

Would a tougher tax regime reduce the ability of private equity partners to afford Notting Hill properties, and so suppress the metropolitan market’s exuberance? Hardly anyone thinks so. Yolande Barnes, Savills’ head of research, points to the series of broken promises to end top earners’ tax breaks. Instead these pledges have been the subject of endless consultation papers, a much-used official delaying tactic. The Central London frenzy is abating – but only somewhat. Neil Chegwidden, Cluttons’ chief economist, notes there is now just an average of 15 people viewing a property – previously there were 20. But there are still four or five of them bidding to acquire the place.

This was not a timely retreat. What does the government now mean to do to save the planet?

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

How the £120 billion buy-to-let industry, in which the typical participant is usually not well-heeled, will respond to rising rates and falling rental yields is more difficult to predict. There are, for example, no figures for the number of recklessly overborrowed owners of rental flats.

Martin Ellis, Halifax’s chief economist, notes that, when the market last stalled in 2005, there was no sign of panic-selling of rental properties. Fionnuala Earley, Nationwide’s chief economist, thinks a few cash-strapped landlords will take their profits – although they should remember that the taxman will be on the lookout for any undeclared capital gains.

Meanwhile, there is pressure to curtail amateur landlords’ tax breaks, including the right to offset mortgage interest: after all, there is no such boon for first-time buyers. But, again, action is unlikely; the Revenue is more preoccupied with clamping down on evasion by landlords than reform.

Controversy over tax rules has had an interesting side-effect. It has strengthened feelings of injustice among singletons and families unable to climb onto the housing ladder who believe that buy-to-let investors get preferential treatment from open-handed mortgage-lenders. But our e-mail inbox also shows a hardening of attitudes among investors, as we report on pages 16-18, who feel aggrieved by their portrayal as “millionaires exploiting downtrodden tenants”.Most consider their properties to be pension pots; some even see the softening of prices as an opportunity to add to portfolios.

This tension between the have-flats and the have-nots will continue to be a keynote of the market, especially if, as predicted, the average first-time property cost ten times average income by 2026.

RED TAPE IN THE LOFT

As Sir Elton John has discovered, the much publicised liberalisation of the planning rules is not what it seems. Last month the planning White Paper from the Communities and Local Government Department appeared to offer far greater scope to extend and covert your home. But the current constraints are still in force, as the singer has learnt, following the rejection of plans to build a 180ft gallery and “sculpture patio” in the garden of his Berkshire mansion for his art and photograph collection, which ranges from Matisse to Mario Testino.

The more restrained ambitions of ordinary homeowners may also be curbed, even under the White Paper’s reforms. It has emerged that it will still be necessary to seek permission for almost all loft conversions, the modification that adds most value to a property.

Rynd Smith, head of policy at the Royal Institute of Town Planning, says that the motive behind this tightening of the rules is to stop more homes acquiring an extra storey equipped with large and unlovely box dormer windows. The picture shown below is an extreme example of this kind of home “improvement”.

It is easy to see why the local government department wished to limit the spread of this unpleasing style of loft conversion. However, it should have made this important exemption to the new freedoms clear at the time of the White Paper’s publication, instead of suggesting that it was going to slash planning red tape.

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