Research by RICS estimates that, during parts of last year, annual house price inflation in the UK was 31% compared to 12% in Spain, the only other European country with double-digit house price inflation. One reason for the surge in prices in the UK was the shortage of available housing. The report said: "No other EU country has such a poor supply record, despite the scale of the price rises in the UK and one of the most market-oriented housing systems in Europe."

RICS predicts a slowing in UK house price inflation as demand eases. The organization does not expect prices to fall but the report adds that "the risk of a major crash cannot be entirely ruled out".

Elsewhere in Europe, the economic slowdown in 2001 had a mixed effect on markets. Ireland, France and the Netherlands, which had experienced strong house price inflation, had seen that slow. In Ireland, although demand was expected to remain strong, the shock of some falls in the second half of 2001 meant consumers would probably be cautious about bidding up prices so rapidly again.

Despite a slowing market, fears of a housing market recession in the eurozone had abated. Transcations had remained steady, housebuilding rates were high and mortgage markets were booming.

Interest rate cuts by the European Central Bank had also encouraged consumers to take advantage of the cheapest mortgage rates in years. Demand for mortgages rose by 8% per cent across the eurozone compared to a 36% increase in the UK. The scale of borrowing has led to fears of a sharp shock to the economy if sentiment changed.