House prices could fall much as 15 per cent if interest rates continue to rise, according to a senior economist at investment bank Goldman Sachs.
European economist Ben Broadbent says the housing market is vulnerable to a fall because it is overvalued, with prices likely to experience a 10-15 per cent drop over two years.
The Bank of England is expected to raise base rate next month although Broadbent says he is unsure what impact a major fall would have on the economy.
The prediction comes after fund manager Tony Dye, the former chief investment officer of Phillips & Drew who forecast the dotcom crash, claimed that house prices could plummet by 30 per cent over the next five years. Dye said rising pessimism about housing was justified with the Bank of England poised to raise rates.
But Broadbent does not believe that that a fall in property prices would spark a recession as households are better off than during the last housing market slump.