Though some bank economists have been predicting house price falls of 18 per cent or more as interest rates rise, Lawless was much more optimistic about the Melbourne property market.

“A 20 per cent fall to me at the moment seems quite pessimistic, and I think house prices will continue to fall but level out around the middle of next year,” he said.

House values in Melbourne’s more affordable suburbs would not fall as dramatically as those in the pricier ones, Lawless predicted.

But mortgage stress, where homeowners pay more than 30 per cent of their income on repayments, was much more likely to hit home buyers in cheaper regions, especially if they have stretched their budget to get into the market.

Woodards Stonnington director Luke Piccolo said prices had come back in the more expensive suburbs, though it depended on the type and condition of the property.

“Anything that’s triple A grade and doesn’t need any renovation work, that is selling really well,” Piccolo said. “But anything that’s compromised, by its size, orientation or condition has seen significant drops … by up to 10 per cent.”

He said buyers were being choosier, waiting until they found a house that met their needs and for the best price possible.

Tuesday’s interest rate rise means many potential buyers are now considering their options as maximum loan sizes fall, and buyers face higher mortgage repayments.

Aaron Allport and partner Kate Hudson sold their two-bedroom house in Yarraville recently and are now looking to upgrade to a three-bedroom home after the birth of their second child.

Allport, a carpenter by trade, said the couple had lowered their budget after considering future interest rate rises, and were hoping to buy a fixer upper as it would be cheaper, but also would rise in value once renovated.

“We were umming and ahhing a little bit because of what has been happening, but our baby is now just over nine months old, so we decided we needed to sell and upgrade,” he said.

“We are looking in a slightly lower price range,” Allport said. “I guess the hopes are that this interest rate rise will level out or drop house prices.”

House values in regional areas are still up, bucking the downward trend of inner Melbourne, albeit not as much as last year.

The Colac-Corangamite region rose 7.4 per cent over the June quarter, while Campaspe (which includes Kyabram and Echuca) jumped by 6 per cent.

Homeowners who are nervous about the latest interest rate rise are being encouraged to review their finances and ask their banks for a better deal.

“It’s time to stop being scared of your bank and call them to find out their best rate,” Mortgage broker and owner of Wheatley Finance, Andrew Wheatley said.

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“We find on average a refinancing of a loan higher than $250,000 can get a 0.5 per cent rate reduction and $2000 to $4000 in cash back.”