Many analysts are monitoring Australia closely as they believe what is happening to the housing market there may be mirrored in the UK over time.

In its latest economic analysis RICS (Royal Institution of Chartered Surveyors) looks at the key issues, outlining what is really going on in both markets, drawing parallels and highlighting the differences between the two.

Australia has witnessed very strong house price rises since the mid 1990’s, and up more than 60% in nominal terms over the past three years alone, not significantly different to that of the UK. For 2003, Australian house prices rose 19% compared to 10% for the UK.

The Australia housing market has many similar characteristics to the UK. Both countries have a high owner-occupation rate of around 70%, with the majority of owners having variable rate mortgages. Also, the economies of Australia and the UK have been relatively buoyant in recent years, both weathering well the global economic slowdown. Falling interest rates have underpinned economic growth with house price inflation strong and households using collateral from growing property wealth to raise borrowing and spending.

As such a further important similarity between the two is the level of debt held by households. For Australia, the Reserve Bank of Australia (RBA) estimated a debt figure of 120% of disposable income for 2002 compared to our calculations of 127% for the UK in the same year

Milan Khatri, Chief Economist at RICS says: "Australia's experience may well be a pointer to the likely direction of the UK housing market, with interest rate rises making a slowdown probable but not necessarily a precursor to a deeper downturn."

What are the similarities between the socio-economic profiles of the two countries?

• Australia and UK have both experienced very strong house prices since the mid 1990's.
• Both countries have high owner-occupation rates of around 70% with the majority of owners having variable rate mortgages.
• Falling interest rates have underpinned economic growth with house price inflation strong and households using collateral from growing property wealth to raise borrowing and spending.
• Levels of debt are high in both countries - UK 127% of disposable income for 2002, Australia 120%.
• Interest rates are rising in both countries.

• Housing supply is Australia has kept pace with household growth.
• There are much higher levels of investment activity in the housing market in Australia (six times higher), which increases the potential for a downturn if investors decide to sell.
• Although interest rates are rising in both countries, the Australian market seems more responsive to these changes.

Why is the Australian market experiencing a slowdown? Will the UK follow suit?

• UK financial markets are expecting interest rates to be in excess of 5% by the turn of the year. But UK interest rate hikes are starting from a lower base than in Australia.