The RICS bases its figures on the belief that the economy has weathered the global slowdown well, supported by aggressive interest rate cuts from the Bank of England. Mortgage rates have fallen to their lowest level in more than four decades, giving a strong boost to the housing market in 2001. Low interest rates also enabled the percentage of income that mortgage payments take to remain in line with the long term average of 21%. This is despite the fact that that house prices in relation to incomes moved above the historical average in 2001.

The RICS warns that the current slowdown in the housing market will continue in the first part of the New Year before the market picks up in early summer in line with the broader economy. Property transactions are also expected to fall in 2002 to 1.4 million, down 2% on 2001.

RICS Chief Economist, Milan Khatri, said: 'The economy is forecast to pick up in the second half of the year, which will provide support for the housing market. At the same time it is likely that interest rates will rise, providing a restraining effect on housing demand and house price inflation.'