House prices have hit their highest levels relative to buyers' incomes since records began two decades ago, according to figures from Halifax bank that triggered fresh warnings of a property crash yesterday.
The average homebuyer is paying more than five times what they earn in a year - even higher than during the last boom in the late 1980s that ended in a devastating slump.
But Halifax said there was no danger of another crash as the economic situation was wholly different from a decade ago.
The figure emerged from its latest survey showing the average house price leapt 2.2 per cent last month, the strongest rise in 15 months. The price/ earnings ratio - house prices as a multiple of the average full-time male worker's salary - hit 5.09 in November. Since then prices have surged more than 4 per cent, which could push the ratio as high as 5.3. It broke through the 5.0 mark only once in the 1980s.
The message that buyers are overstretching themselves was amplified by news that the price paid by a typical first-time buyer had hit £100,000 for the first time, thanks to a 23 per cent rise on a year ago.
Ed Stansfield, a property economist at Capital Economics, which expects prices to start falling this year, said it was further evidence the market was "extremely fragile".
"Some people are dismissive of the ratio but it has not yet sent a false signal of a correction," he said. "It has signalled all the post-war busts." Capital Economics forecasts prices will fall 8 per cent both next year and in 2006. "We believe a 'hard', not a 'soft' landing, is the most likely outcome," Mr Stansfield said.
But Halifax said while rising interest rates would put the brake on the pace of price rises, a healthy labour market, historically low mortgage rates and the affordability of homes would support the market.
Mark Hemingway, a Halifax spokesman, said: "We don't see a crash. If the question is 'is there any comparison between now and the 1990s?', then the answer is that the conditions are totally different. It is a different marketplace, the economy is not out of control and interest rates are not going to rocket." Halifax said even if rates rose from 3.75 to 4.5 per cent as the City expects, the share of income needed to pay the mortgage would rise from 13 per cent to about 15 per cent - below a long-term average of 21 per cent.
City economists are unanimous the strength of the housing market, with mounting evidence of a booming economy, will force the Bank of England to raise interest rates today.
A separate survey showed service sector activity rose to a six-year high last month. A rush of new orders and continued optimism pushed activity to its highest level since June 1997.John Butler at HSBC said: "Strong activity, along with a further rapid rise in house prices, support a rate hike despite sterling's rise." He added that rates would hit 4.5 per cent by the summer.
He said the survey, by the Chartered Institute of Purchasing and Supply (Cips), was a good indicator of the health of the overall service sector, which made up two-thirds of the economy. It followed Cips' surveys on the manufacturing and construction sectors earlier in the week, which Mr Butler said pointed to quarterly GDP growth of 1.0 per cent in January, up from 0.9 per cent in December.
But Cips played down the survey's implications for rates, saying prices charged by businesses were rising only gradually. "There is no need for an interest rise from this sector right now," said Roy Ayliffe, a director at Cips.