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UK house prices are ‘overstretched by 65%’ – crash feared

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25/05/2007

The UK housing market is up to 65% overvalued and needs more interest rate rises to control it, according to international economists.

The Organisation for Economic Co-operation and Development (OECD) said that UK property prices were among the most stretched of any major world economy.

Other UK-based analysts warned that rates could rise to 6% before the end of the year, a prospect that will alarm many homebuyers already struggling with big mortgage repayments.

“If the Bank Rate goes to 6% then my mortgage is finished and I’ll have to go back to renting,” said homeowner Ian Jackson of Kent. “My wife and I have pushed the boat to buy our home and we are close to struggling already.

“I would be devastated if the Bank of England causes me to lose my home.”

But the OECD said that a property crash cannot be ruled out, especially in countries like Canada and the UK where prices are particularly stretched, and that stiff rate rises were the corrective measure to avoid this.

It said: “Some slackening of pace of housing investment is likely in many OECD countries, and that may contribute to a cooling down of some fast-growing economies.”

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