UK house prices are 20 percent overvalued

According to credit rating agency Fitch, UK house prices are at least 20% overvalued compared with their long term average.

"Fitch judges how risky debt is"
Fitch looked at how house prices have raced away from incomes over the past decade. High levels of debt make the UK economy one of the most vulnerable in the world to higher interest rates, it added.

Fitch looked at a combination of economic indicators to see where house prices were overvalued and which economies were at risk if interest rates rose. They also looked at what type of mortgage dominated the market. Countries where variable rate mortgages are in vogue, such as the UK, would feel a greater impact from higher interest rates, Fitch said.

New Zealand and Denmark, which have both seen house price booms and increasing levels of personal debt, were the two most vulnerable to higher rates, followed by the UK.

At the other end of the scale, consumers in Italy, Germany and Japan were the least likely to suffer if interest rates rose and debt became harder to manage.

This is because consumers in these countries have not seen house prices or debt race away from incomes to the same extent as the UK.