Buyer and seller confidence in the housing market has been steadily declining over the last three months.

Only 78% of people now believe house prices will continue to rise, down from 84% in December, before the most recent rate hike and 81% last month.

Warren Bright, chief executive officer of Propertyfinder.com commented: “Recent government data indicated annual house price inflation was falling just short of 10% in December, but this is looking at the market in the rear view mirror.” 

“Other recent data on lending and prices suggest the current the current trend is already slowing. Our research indicates that whilst the rate hikes in the second half of 2006 had a slight dampening effect on the market, the shock January rise has made a much bigger impact.”

Buyers are less optimistic than sellers

Demand for homes continues to outstrip supply - there is currently an average of three buyers for every house on the market in the UK - On average buyers are still having to offer 1.5% above the asking price in order to secure their home.  However, buyer confidence on the outlook for prices is far lower than that of sellers - a warning sign that the market is set to slow.

85% of respondents believe that any future cooling in the market would be attributable to further interest rate rises.  This is compared to 76% in January, and 65% in December.  56% also believe that household debt would be a major influencing factor should house prices fall.

However, Britain's inflation rate eased slightly in January after jumping to an 11-year high in the previous month - the Consumer Price Index dropped to 2.7% from 3%, according to the Office for National Statistics.  This is good news for the housing market.  Inflation has fallen more rapidly than expected, prompting the possibility that interest rates may not need to rise much further.  This would come as a welcome relief to the housing market and could serve to reaffirm consumer confidence.

Warren Bright added: “The succession of rate rises since last August has obviously been playing on the minds of home buyers. People’s confidence in the housing market has waned considerably in recent months.” 

“The latest inflation figures suggest the Bank of England is out of hot water and can afford to refrain from further action in the immediate future.  If they do, the housing market has a better chance of slowing in an orderly fashion.”