Both residential and commercial property markets are slowing sharply in the UK as higher interest rates start to bite.

The buy-to-let sector has benefited but there may be trouble in store.  Nationwide reckons house prices rose on average by under 1% in August, with the year-on-year rate of growth declining to 9.6%. Halifax reports that in September prices fell 0.6% and have risen just 0.9% in the last three months.

- The Royal Institution of Chartered Surveyors (Rics) said more of its members reported price falls than rise in prices in August, and that first-time buyer enquiries fell at their fastest rate for three years.

Affordability is more stretched than ever
Rics said: "Potential house buyers have become far more cautious as they wait and see what affect interest rate rises will have on household finances.

"Affordability is at its most stretched in over a decade and many will worry that rising mortgage repayments will prove a step to far.

"The market will soften further, going into the autumn, reducing some impetus from those that have been chasing a rapidly moving target. Home Information Packs (Hips) have reduced the number of four-bedroom family properties coming onto the market, making family homes even more difficult to purchase."

Lending slowdown
The Council of Mortgage Lenders reported a 6% drop in lending in August, while Rics remarked on a 32% rise in repossessions in the second quarter of 2007.

It predicted repossessions could rise by a further 50% to 45,000 in 2008. A significant number of these are buy-to-let properties where landlords are throwing in the towel as a result of rising mortgage interest rates.

Though Rics also reported a rise in rents over the summer, this was mainly due to the fall in first-time buyer activity and with many landlords paying more in interest than they get in rent, it's probable there is more pain ahead in this sector.

We've remarked on the Hip factor and the risk that the roll-out of Hips could slow the market as people hold their property off the market.

Refinancing could get tougher
The elimination of Northern Rock as a mortgage lender is likely to make refinancing tougher. Rock accounted for over 15% of new mortgage lending this year, and other lenders will probably use the reduction in competitive pressure to jack up their rates.

It's likely that house prices will see their first monthly fall in the next few months and at some time in 2008, for the first time since 2000, we'll see a year-on-year decline in average prices.

For long-term homeowners, this is of no great importance, but it will be surprising if we don't soon see a lot more highly geared buy-to-let investors heading for the exit.