HOMEOWNERS were warned last week that the credit crunch in the financial markets could usher in a period of stagnation for the property market, after years of robust growth.

Housing-market analysts have been predicting a slowdown for some time, but the financial crisis is likely to bring it forward as higher mortgage rates force homebuyers to tighten their belts.

House prices have fallen by 2.6% over the past month, according to property website Rightmove – the largest monthly fall since January 2002.

Rightmove looked at asking prices, which are typically three months ahead of the completion prices monitored by Halifax and Nationwide, so it is seen as a good indicator of future price trends – although the figures this month have been distorted by the introduction of home information packs (Hips) for bigger homes, which has kept some properties off the market.

Nevertheless, the financial crisis is undeniably hitting home. The Royal Institution of Chartered Surveyors (Rics) said last week that confidence is at its lowest level since June 2005. Oliver Gil-martin, senior economist at Rics, said: “Rightmove’s figures may even underestimate the negative sentiment which has hit the housing market in recent days. We do not expect a crash but a sharp slowdown is likely. The biggest threat to the housing market comes from the current credit turmoil impacting the wider economy in the coming months.”

The annual rate of house-price growth has been running at double-digit levels for much of the year – prices rose 11.4% in the 12 months to August, according to Halifax. However, economists expected the growth rate to reduce to single digits in the second half of the year.

Homeowners have had to cope with five interest-rate rises between August 2006 and July this year. Bank rate has gone up from 4.5% to 5.75% adding £156 a month – £1,875 a year – to the monthly payments of someone with a £150,000 interest-only loan.

About 800,000 borrowers will come to the end of fixed-rate mortgages in between now and the end of the year. They have so far been protected from the rising interest rates, but they face a payment shock. The leap in payments could be even bigger than many are expecting because variable-rate deals look set to get more expensive as a result of the credit crunch.

Buy-to-let investors are likely to be the hardest hit because many of them have loans linked to Libor, the wholesale rate at which banks lend to each other, rather than Bank rate. It hit 6.9% last week – 1.25 points more than the 5.75% Bank rate.

Most lenders reset Libor mortgage rates every three months. Skipton building society, which is a large lender in the commercial market, recently increased its Libor rate from 5.81% to 6.63% – this will add £103 to the monthly payments of someone with a £150,000 inter-est-only mortgage.

Jonathan Moore at Mortgages for Business, a broker, said: “I think a lot of borrowers will be taken by surprise when their mortgage rate goes up as a result of the current funding crisis. They will have already seen their payments rise on the back of Bank rate increases, and some will undoubtedly be struggling.”

Tim Warrington at Landlord, a property website, said 14,000 buy-to-let investors registered with the company are currently trying to sell. Not all of them are piling out of the market because of financial difficulties; some are selling because prices have risen so much in recent years and they want to realise some profits. However, it is not good news for the housing market.

Warrington said: “Some landlords have decided that the market conditions in the UK are looking bleak so they are bailing out now while they can. If too many do this, it could send the property market into freefall. We urge buy-to-let investors to hold their nerve through these tricky times and look on it as a long-term investment.”

There is some evidence that homeowners as well as investors are starting to feel the strain, with an increasing number of people seeking to sell their property because they cannot afford spi-ralling costs.

National Homebuyers, a company that buys properties from those needing a quick sale, has seen a huge increase in inquiries over the past few months. The number of people coming to it for a quick sale leapt 95% in July, and a further 20% in August.

David Harber, at the company, said: “The number of people contacting us because they are either in or are predicting financial difficulties has more than doubled since the beginning of the year.

“Many property owners are becoming increasingly uncomfortable with the state of the property market and they want a fast way out.”

Nevertheless, economists are sticking with their forecasts that growth will slow, not crash. Fionnuala Earley, chief economist at Nationwide building society, said: “There is nothing in the news that is positive for the housing market at the moment, and we are expecting it to slow down considerably. That said, we still have a supply shortage, which should underpin prices over the longer term.”

Earley expects the rate of growth to slow to 6% by the end of the year.