The housing market continues to surpass performance expectations and defy the views of those who have long been predicting that the bubble will burst. But there are still those who think that the market is ready for a major correction or worse, a serious crash.

Durlacher are the latest doom mongers, with the investment bank this week claiming that prices could fall by as much as 45 percent over the next two years, which would represent nothing short of a catastrophic collapse.

The views are put forward in a new report, entitled “Bubble Trouble: The UK Housing Market” which paints a horrific picture of what could happen if its imaginary bubble does actually burst.

The bank recons that the ‘bubble’ has been formed by widespread buy to let investment, allied with slack underwriting criteria that has left borrowers with more debt than they can really afford. A change in the second of these factors – lenders starting to tighten their criteria – is what Durlacher believes will be the trigger for the collapse, which it says will happen when the FSA starts to regulate the sale of mortgages more closely from October.
Furthermore, as buy to let yields dwindle due to an oversupply of rental properties for the number of potential tenants in the market, Durlacher believes that landlords will exit the market in droves, leading to a glut of properties on the market. This massive oversupply will then contribute some serious momentum to the fall in prices.

John Wriglesworth, economist for property website Hometrack, said the report was one of the first to publicly dismiss the claims of the report, saying: "This is essentially headline grabbing claptrap. The analysis is fundamentally flawed. It seems to ignore logic and reason and basic fundamentals such as low interest rates. The idea that house prices will fall by 45% is absolutely ridiculous. There is more chance of finding Elvis on Mars than house prices falling by anywhere near that this decade."

Milan Khatri, of The Royal Institution of Chartered Surveyors (RICS) also dismissed the notion that the market will crash this year: "The question on everyone's lips is will the housing market crash next year - our response is no but, as always, this will depend on the continuing strength of the overall economy and low interest rates. The housing market bubble will not burst in 2004 and prices will continue to rise, although by only half as much as in 2003."