Donnell believes that it is important to understand that the high levels of house price growth in recent years have been mostly a result of the significant fall in interest rates. 'The downward shift in interest rates from an average 11.5% over the 1980's to an average of 5.5% over the 1990's has given households a huge boost to spending power when it comes to buying a house.'

The doubling in household incomes since the peak of the market in 1989 has also boosted buying power, says FPDSavills. This double boost to housing affordability is why house prices are rising at record levels. The slowdown in growth will come once this extra affordability has worked itself out of the market, which, he believes, may not be for another 12 to 18 months.

There are risks to the outlook, admitted Donnell, in particular weakness in the labour market and rising interest rates. These are the same factors that have always caused problems for the market in the past. However, current economic forecasts point to only a marginal increase in interest rates over 2003 and positive growth in overall employment levels. Only when these trends reverse will the outlook for the housing market worsen. 'A larger than expected rise in interest rates over the course of 2003 could well result in our projected rate slowing to less than 10%' commented Donnell.