A top investment bank today warned that house prices in the UK are set to drop by 7% over the next three years. The bank also predicted that there is now a one in four chance of an early nineties-style crash to the property market.

Lehman Brothers said a global economic downturn, tax increases and a sharp rise in mortgage repossessions could send prices plummeting by up to 17%.

Lehmans UK economist, Alan Castle said: "House prices are about 15% overvalued. Our central forecast projects falling house prices and a sharp slow down in consumption growth."

He added: "In normal terms, house prices fall back gradually, although the volatility of the data could well mean a few months of falls being followed by a small gain. In cumulative terms we judge that prices may fall by 7% between now and end 2007."