The Organisation for Economic Co-operation and Development (OECD) has warned that the UK residential housing market is 65% overvalued.

Financial experts believe this will lead to a further rise of interest rates to 6% before the end of this year. The Paris-based OECD argued that the UK property economy was world-leading in being overvalued, with the possible exception of Canada.

In its Economic Outlook report, it made a comparison between average house prices and annual rental incomes to establish that the UK market was overvalued by more than 60%. Figures released by the Council of Mortgage Lenders (CML) last month showed that mortgages were up by over £1,000 from the same time last year, a sum that would continue to rise if the interest rates push higher.

Rises in interest rates could lead to a much expected slowdown and a possible crash in property prices, according to the OECD, and that stiff rate rises were the corrective measure to avoid this. The report said: “Some slackening of pace of housing investment is likely in many OECD countries, and that may contribute to a cooling down of some fast-growing economies.”