It is early days but there are signs that recent interest-rate rises are affecting buyer sentiment. Given the already poor level of affordability, that is not surprising. A further rise in base rates seems likely, so I’d expect the nascent slowdown to increase as the year progresses, and house-price inflation to fall to 3-4 per cent by the end of the year.

For the time being it’s hard to envisage much more than a moderation in housing market activity and prices. The low level of secondhand stock coming on to the market should help to support prices, even as higher interest rates start to cool demand.

However, I’d be wary of concluding that there are no significant clouds on the horizon. It is difficult to envisage the circumstances that might drive interest rates significantly higher, or what might precipitate a serious economic slowdown. However, history suggests that these things have a habit of sneaking up unannounced.

To me, the current elevated level of house prices suggests that the market will be vulnerable to a shock for several years.

Property economist, Capital Economics

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