A mixture of caution and blind optimism litters the published thoughts of property market watchers, as the rate hike in January caught nearly everyone unawares.

The effects were almost instantaneous, as house prices increased in January by the smallest month-on-month amount in eight months, according to Nationwide’s regular survey on the matter. The average selling price rose by just 0.3 per cent to £173,225, dragging the year-on-year rate of increase down to 9.3 per cent from 10.5 per cent in December. ‘It is an extremely close call between rates remaining unchanged and rising once more,’ says Nationwide economist Fionnuala Earley, ‘but higher rates will undoubtedly add to the first signs of cooling in the housing market that we have
already seen.’

The Royal Institution of Chartered Surveyors (RICS) corroborates that if rates go up again in February ‘the housing market could abruptly decelerate in the coming months, but the economy won’t really react until the second half of the year.’

Among the panoply of property soothsayers, house price growth predictions vary quite wildly, with the most optimistic being the increase of seven per cent projected by the RICS for 2007, the estimates of seven and six per cent from estate agents Savills and Knight Frank, and more moderate four and three per cent forecasts by mortgage lenders Halifax and Nationwide. The cynics include Invesco Perpetual’s Neil Woodford, who foresees a ‘healthy correction’ of up to 40 per cent over the next three to four years, only slightly more than the 25 per cent fall expected by The Economist’s economics editor Pam Woodall over the same period.

An equally dire outlook is presented by online property expert Home.co.uk, which recollects that ‘the current US housing slump is a direct consequence of a series of interest rate hikes in 2006 by their central bank in an attempt to curb inflation. A similar chain of events appears to be now unfolding in the UK.’