Houses in the South East, the South West and particularly in London are heavily overvalued, according to new research.

A prolonged period of slow, or even negative, house price growth may be needed

PwC

PricewaterhouseCoopers, an accountancy firm, found that property in London was overvalued by approximately 31%, compared with a peak of 40% in the late 1980s housing boom.

Other overvalued areas included the South West, where the figure was 20%, and the South East, with the cost of property overvalued by approximately 14%.

The figures were reached by comparing the current ratio of house prices to incomes with average historical levels to measure the degree of overvaluation.

Northern exposure

But in Scotland, the North of England, Yorkshire and Humberside there is less concern about property overvaluation, with ratios similar to long-term averages.

In the North West, homes are overvalued by approximately 8%.

In Wales and the West Midlands property the figure is 11%.

In the East Midlands and East Anglia there is a 13% overvaluation.

Correction likely

PwC warned that the rapid price rises witnessed in many parts of the UK in recent years were unsustainable in the long-term.

However, it said that "a prolonged period of slow, or even negative, house price growth may be needed" to restore prices to sustainable levels in some parts of the country.

But in London and the South East - two of the most overvalued regions - property shortages were likely to sustain the market.

Rosemary Radcliffe, chief economic adviser at PwC, said: "Recent rates of house price inflation are unsustainable except in the very short-term."

But she said she thought the rate of growth would slow so that house price to income ratio would return to more sustainable levels."