Home buyers who relied on government subsidies and didn't stump up much of their own "hurt money" will be affected most by escalating interest rates predicts KR Peters Director Peter Nicolls.

Mr Nicolls said property prices wouldn't have escalated to the heights they did during the pandemic if governments, both state and federal, hadn't "supported the property market to the extent they did" with grants and stamp duty relief.

"People were getting grants of up to $53,000 to buy a new house without having much equity," Mr Nicolls said.

"Prices kept going up and up to point there was a fear of loss and there was panic buying. People were flipping properties, everything was ripe for a quick profit. The reality is that someone has to pay the price."

Mr Nicoll's comments came after the Reserve Bank pushed mortgage rates to a new decade high on Tuesday 4 October when it raised rates by another 25 basis points to 2.60 per cent.

Most retail variable rates are now above 5 per cent.

Economists agree there are more rises to come, but are divided on how far interest rates will go.

According to RateCity, the ANZ now predicts the cash rate will peak at 3.60 per cent in May next year. Westpac believes the cash rate will hit 3.60 per cent in March.

NAB has kept its 3.10 per cent peak but has pushed it back from November to February 2023.

CBA’s cash rate outlook remains unchanged, forecasting the peak at 2.85 per cent next month.

Mr Nicolls believes the fate of interest rates rests on whether the federal and state governments go further into debt.

"When interest rates were cheap it seemed like the right strategy for governments to repay loans and reborrow larger sums at lower interest rates. Now those debt levels are starting to hurt as the new interest rates take effect. The only way they can move forward now is to increase taxes. Who pays in the end? Middle class mums and dads."

Mr Nicolls said even though the Reserve Bank was trying to tame inflation by increasing rates, rising costs across the Australian economy were influenced by factors beyond our shores including the war in Ukraine, the demise of coal as the primary source of cheap energy and extreme weather which had pushed up food prices.

He said with COVID also still impacting the global economy the world was "experiencing unprecedented times".

Mr Nicolls said the team at KR Peters was still reporting good buyer activity, however some buyers now felt confident to make "ridiculously low offers", while some agents were underquoting to generate enquiries.

"Properties are still being sold at fair and reasonable prices, but they are 5 per cent below what we saw six months ago and there are some absolute bargains out there," Mr Nicolls said.

He said buyers were watching closely how the major banks act on interest rates.

"About six weeks ago the Commonwealth Bank fixed interest rates at 4.99 per cent for four years. That gave buyers confidence that rates wouldn't go through roof. If that hadn't happened, buyers would have sat on the fence," he said.

Mr Nicolls said what happens with rents will also be crucial to the property puzzle in 2023.

"I predict rents will be up another 10 per cent as investors are out of pocket because their interest rate bills have risen and they haven't been able to increase rents to the same extent," he explained.

"I know of one rental provider in Officer who dropped the rent on his investment property by $50 a week during lockdowns to find a tenant. Now with the new interest rates, his repayments have gone up by $750 a month. The renters took the rental provider to Consumer Affairs which said he can't increase the rent by more $25 a week because it was an existing renter. If he were to readvertise the property he could easily get more."

Mr Nicoll's advice to buyers is to "save every dollar you can and borrow as little as you can" as borrowing capacity continues to fall. Mr Nicolls said borrowing capacity had dropped $130,000 on the average loan since the Reserve Bank's first rate rise in May.

Despite the economic doom and gloom, Mr Nicolls said now was still a good time to buy.

"Buyers need to do their homework and understand the current market. They need to understand the benefits the property offers and understand where value is at. Buyers need to make someone's disadvantage their advantage."

He predicted there will be two more 25 basis point rises but fears the Reserve Bank may go too far and send the Australian economy into recession.

"The next interest rate rise will be a tipping point. Buyers will apply the brakes and some owners may have to walk away, especially those who relied on government grants to buy."