Britain facing massive house price crash, warns IMF

The International Monetary Fund says that British property is even more inflated than in the US before prices plummeted - a disaster that caused turmoil in stock markets and saw many thousands lose their homes.

In its half-yearly health check on the global economy, the IMF singles out three nations at severe risk.

"Housing markets have boomed in a number of fast-growing countries, most notably Ireland, Spain and the UK," it says. London would bear the brunt of any crash.

The words will be alarming to Alistair Darling, who is travelling to Washington tomorrow for his first IMF meeting as Chancellor. Labour plans for re-election could be ruined by a major downturn in the value of property - the biggest investment most people make.

Estate agents have been reporting falling house prices for several months, but have insisted that a full-blown crash is unlikely. The Bank of England has raised interest rates five times since August last year in an attempt to cool inflation and stabilise the economy.

The IMF added: "The extent of house price over-valuation may be considerably larger in some national markets in Europe than in the US, and there would clearly be a sizeable impact on the housing markets in the event of a widespread credit crunch."

In America, the collapse in housing prices and a rise in borrowing costs saw many home owners unable to keep up repayments on mortgages.