HOMEOWNERS were warned that the risk of house-price falls moved a step closer last week after shock inflation figures raised the prospect of even higher interest rates. The Financial Services Authority, the City watchdog, said lenders should prepare for a 20% drop in house prices because the low interest rates and inflation that borrowers have enjoyed over the past five years are unlikely to continue — though it stressed this was not a prediction. Housing-market bears think there are all the ingredients for a sharp fall in prices. ABN Amro, the investment bank, has said that property in Britain is overvalued by 50% and prices have become “detached from fundamentals”.

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