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Tax and interest rate hikes endanger house market recovery

Higher interest rates and a capital gains tax (CGT) hike could put the housing market's recovery at risk, a leading property analyst has warned, as further evidence reveals that a recent pickup in the sector may be running out of steam.

Today, Assetz House Price Watch, which compiles the five major price surveys, will say that average prices in April rose 9.5% on the year, to £200,615, just 6.7% off their October 2007 peak. However, Hamptons, the estate agency, said a sharp increase in supply will constrain prices for the rest of the year. It said new sale instructions rose by a third in April. And the Hometrack consultancy said the possibility of higher interest rates and CGT rates now represents the "greatest threat" to the market, where constrained mortgage lending is already acting as a brake on growth.

There is growing speculation that the Government will announce a sharp rise in the CGT rate in its emergency Budget next month, which would affect property owners with second homes.

Any rise announced might not take effect until April of next year. That could lead to a further sharp rise in supply as second homeowners rush to sell before the higher tax rate is introduced.

Rising interest rates would also damage demand for housing.