House prices are still growing but higher interest rates are beginning to take their toll, says Capital Economics. Recent house price indexes have all conveyed a robust market: buyer confidence is still high, according to Hometrack’s and market surveys from Rightmove, the DCLG and the Land Registry have all reported rising house prices at the beginning of 2007. The figures come as a relief to those who feared the consequences of rising interest rates, but property experts are convinced the market will cool in 2007.

According to Rightmove, house prices rose by 0.5% in January, the strongest increase for January in the last five years. The rise pushed the annual growth rose from 13% to 13.5%.

But while prices continue to go up, there has been a decrease in new buyer enquiries. The RICS reported a negative balance for the first time since May 2005. Meanwhile the number of new sales instructions has continued its downward trend, ensuring demand still outweighs supply. The ratio of sales to unsold stock is highest in London and the South East thanks to strongly rising sales and a lack of good property on the market.

Property experts agree that at present the market is solid but are bracing themselves for more interest rate rises. ‘For now, house price growth remains solid. Gradually weakening mortgage demand, however, is likely to cause house price growth to slow markedly by the end of the year,’ said Kelvin Davidson from Capital Economics. ‘The further rate rise that we expect will only reinforce these effects and we expect a significantly cooler market by the end of 2007’.