International Monetary Fund says Britain's housing market would be vulnerable to a correction

Britain could see a fall in house prices similar to that happening in the United States, the International Monetary Fund (IMF) has warned.

In its latest World Economic Outlook report, the fund said a number of advanced nations’ housing markets outside of America could be vulnerable to a correction.

It said: “There remains the concern that the US experience might presage steep housing downturns in other countries that have also experienced a rapid rise in house prices, with associated risks for output growth.”

But it noted that western Europe was better off than the US because it had generally avoided the “sub-prime” mortgage market.

It added that strong immigration and a lack of housing supply could continue to support prices.

The other European countries considered to be at risk of a housing downturn by the IMF are France, the Republic of Ireland, Netherlands and Spain. All these countries have seen large increases in house prices relative to incomes in recent years.

The IMF predicts that global growth will be 4.8% in 2008, 0.4 percentage point lower than previously expected.

The news follows a number of reports that have indicated a cooling in house price inflation in the UK.

Earlier this week, the government said the annual inflation rate for property fell from 12.4% to 11.4% in the year to August and Halifax said it saw the same pattern in September.