The Reserve Bank's decision to increase interest rates by 25 basis points will hasten a correction in the property market, predicts KR Peters Director Peter Nicolls.



Mr Nicolls said prices were already softening prior to the board's May 3 decision to lift the official cash rate.



"The correction is happening now," Mr Nicolls said.



"There are vendors out there in panic mode because their properties are not being sold, they are not getting buyers through the door.



"Properties are definitely taking longer to sell. A few months ago properties were on the market for 14 to 21 days. Now they are taking 60 to 90 days to sell."



He warned now is a "dangerous time" because people who bought on long settlements may find their new asset worth less than when they purchased it and find at settlement that they paid too much.



Mr Nicolls said he had heard anecdotal evidence of contracts failing to be completed. Buyers who have paid minimal deposits are deciding to cut their losses and lose their deposit rather than buy a property that is falling in value.





"I'm hearing of vendors that were offered over $1 million in October last year, then had offers of $1million and are now selling for $980,000," he said.



"Buyers don't have the fear of missing out any more."



Mr Nicolls said most borrowers should be able to comfortably absorb the .25 per cent rate rise as well as others that are expected to be announced over the next 12 months.



"Banks factored in a 2.5 per cent buffer zone for themselves. So what it means now is that buyers' borrowing capacity is less."



Mr Nicolls said the rate lever should have been pulled last year and like a tap left to run too hot, the Reserve Bank has left it too late to adjust rates upwards, letting inflation build up in the economy.



He is also sceptical of federal Labor's 'Help to Buy' pledge should it win government on May 21. Under the scheme 10,000 Australians will be helped each financial year to buy their own home with a 2 per cent deposit. The catch is the government will own 30 per cent of established homes and 40 per cent of new homes.



Mr Nicolls said the scheme was "Fanny Mae" all over again, with the government set to lose millions of taxpayer dollars should homes purchased under the scheme fall in value.



"It is also going to inflate prices in some areas and sooner or later the scheme will go bust.



"The bottom line is that those who can only afford a 2 per cent deposit shouldn't be in the market. They should keep the 5 % deposit scheme and stamp duty savings for first home buyers and let the market find its own feet."



Mr Nicolls said it was too hard to predict where rates or property prices would be this time next year.



"Rate rises are going to keep going up and that will hurt people. Banks will tighten the reins on who they lend to. People who have a bigger deposit, say 20 per cent, will get a better rate from the banks.



"With inflation people are struggling to get materials to finish jobs which are taking longer, immigration is still down and now we have rate rises, so there are a lot of factors that will play into weaker demand."