Houses '30 per cent' overvalued

House prices in London are overvalued by 31 per cent, experts warn today, but they play down the chances of an early-Nineties style crash.

The excess pricing was revealed by economists at Pricewaterhousecoopers, who compared house price levels to incomes and found the current situation was close to the 40 per cent over-valuation of the late Eighties property boom.

London was by far the most overvalued region, with the South-East 14 per cent overvalued and prices in the South West 20 per cent too high. Nationwide prices were 10 per cent too high.

Current levels of house price growth are unsustainable, Pwc chief economic adviser Rosemary Radcliffe said. Growth would slow significantly in 2003 and 2004 as interest rates rose and wages growth moderated.

House prices will adjust to a more normal level relative to incomes, she said. But she ruled out a sharp price plunge in London and the South-East because of the shortage of properties.

"We would be cautious about predicting a significant absolute decline in UK house prices of the kind that occurred in the early 1990s," she said.

This week mortgage lenders took the unprecedented step of calling for interest rates to go up to help cool the overheating housing market.