The International Monetary Fund warns that overvalued house prices could lead to a fall and a double dip in the UK market.
In its World Economic Outlook, the IMF stated that the high property prices in Britain were "worrisome", and that tax breaks might not be enough to head off another economic downturn.
According to UK surveyor e.surv, tighter credit conditions in September have made it harder for Britons to get a mortgage. Demand for mortgages has decreased since the start of the year; at the moment the number remains at 50% of the level it was before the financial crisis.
There had been a slowdown in activity after the stamp duty holiday on properties worth up to £175,000 expired in December 2009. In March, it was replaced by a two-year exemption for first-time home purchases up to £250,000. Household debts also remain high, even though they stopped growing in 2009, leading to a decrease in debt-to-income and debt-to-financial assets ratios.
The IMF forecasts a 2% growth for the UK in 2011. It believes that the weak property market and impending public spending cuts will affect growth but not stall it completely.