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Property market 30 per cent overvalued

30 July 2004
Houses in the UK are currently being overvalued by 30 per cent according to the National Institute of Economic and Social Research (NIESR).

The think tank has suggested that prices need to fall for the housing market to become sustainable over the long term.

Yet it predicts that equilibrium will be achieved by a gradual slow-down rather than via an early 1990s-style crash.

NIESR added that the Bank of England's Monetary Policy Committee (MPC) should raise interest rates from 4.5 per cent to 5 per cent in a bid to keep a lid on inflation.

"The Bank is worried about putting up interest rates too hastily because of the effect on the housing market and consumer demand," said Ray Barrell, senior research fellow for NIESR.

"But if you have a boil it's better to lance it earlier rather than later."

The MPC meets next week to decide whether it will increase interest rates for August.