Confidence in the housing market slipped sharply in April with 64% of house-hunters saying they expected house prices to fall over the next 12 months compared to 48% in March.

This is the finding from Propertyfinder.com’s April survey of house-hunters, of whom 57% are 'house price pessimists' and blame fears of rising interest rates for their view, the highest level since August 2004, when interest rates went up to 4.75%.

Overall, respondents expect prices to slip 7.7% over the next 12 months compared to a drop of 2.6% in March.

Other factors are also at play however. The fear of unemployment is returning. In October 2004, just 4.4% of respondents said that rising unemployment would contribute to their negative view on the housing market. By January, this had risen to 10% and by April, 22% of respondents said they believed rising unemployment would put the housing market under pressure.

Jim Buckle, managing director of propertyfinder.com comments: "There is no justification whatsoever for the Bank of England’s Monetary Policy Committee to increase interest rates. The economy is already under enough pressure."

"Our survey shows that the fear of unemployment has risen sharply, spurred by the high profile collapse at Rover. With consumer confidence already shaky and higher taxes likely to take another bite out of consumer incomes, growing job insecurity is the last straw."

"The magnitude of the drop in confidence in April was certainly exaggerated by the general election. Our research shows that this always happens at election time and without any rational explanation. We expect confidence will steady somewhat from here on. An early indicator of this can be seen in the number of referrals propertyfinder.com made to estate agents, which rose 20% between March and April."

Home-buyers react prudently to changing conditions

House-buyers have nevertheless responded sensibly to the changing market conditions and are stretching their incomes much less in buying their home. In May 2004, buyers were on average looking for homes 4.9x their household income. By January 2005, that had fallen to 4.6x and in April the multiple was a more modest 4.2x.

Mortgage levels are also undemanding. In April buyers were only looking to borrow 63% of the value of their new home. This means that negative equity is not going to rear its head as a major problem for the market.

Buyers understand that they now are in a stronger bargaining position. They no longer need to stretch themselves so far in making offers, are taking their time looking for the right home (25 weeks in April, up from 18 in January 2005 and 15w weeks in March 2004), and are having more viewings (an average of 6.2 in April compared to 5.5 in March and 5.2 in January).

"Buyers are feeling less pressured now that the market is cooler and less frenetic than in recent years," said Mr. Buckle. "They are doing the right thing by examining their finances and managing their potential borrowings prudently. This is a good sign that despite this softer patch, there is no need to fear a crash."