Homeowners are facing a property market crash where the value of their house will be worth 20% less than what they paid for it, an economic report has warned.

The survey, which is based on a set of global house price indices in 13 countries, says the price of homes in several developed countries will drop dramatically in the near future. Within four years Britain could experience a housing crash more serious than the recent stock market collapse.

The report warns that a similar collapse could also occur in the US, Australia, the Netherlands, Spain and Ireland.

The report in the Economist says thousands of homeowners face the prospect of negative equity in the near future, where the value of their house is less than the money they borrowed to buy it. This scenario is particularly likely if there is no upswing in the global economy, the report says.

It maintains that the recent rapid pace of house price inflation is clearly unsustainable and that house prices across Britain could drop by 20-25% and in London by much more. Significant numbers of owners may be left with homes worth less than their mortgages

“In many countries the stock market bubble has been replaced by a property-price bubble. Sooner or later it will burst,” said Pam Woodall, Economist economics editor.

The trigger for a house price crash could be a relatively modest rise in interest rates as total levels of household debt are at record highs fuelled by borrowing and housing equity withdrawal on the back of historically low rates.

Ms Woodall said it was a myth to assume rate increases on the scale of the late 1980s would be required to affect house prices. The major indicator for the residential market - the ratio of house prices to average income, is at record highs in the United States, Australia and Britain.

A potential trigger for a housing crash in Britain could be sales from the booming investment ‘buy-to-let’ market which reached 27 billion pounds at the end of 2003. Ms Woodall said in many cases rental income is now insufficient to cover mortgage payments and with house prices in some parts of the London market already falling, the prospect of compensation in the form of capital gain increases are fading.