House prices in London are at risk of falling sharply because they are grossly overvalued, according to research from UBS Global Real Estate.

The study found that London is second only to Vancouver in Canada in the list of world cities at risk of a “severe correction” in its housing market, suggesting that the market is heading into bubble territory despite the strong economy in the capital.

Only property in Hong Kong is more unaffordable than London, when taking into account rising property prices and average earnings.

In London, residential property prices are 15% higher than the 2007 market peak, but incomes are 10% lower.

UBS highlighted the fact that the slowdown at the high-end of London’s housing market, caused largely by the introduction of higher stamp duty rates, reflects “an end to the global boom for luxury properties”, with a “renewed luxury boom” unlikely to happen due in part to the recent Brexit vote, and yet the slowdown at the top of the market has “failed to cool down the broader housing market” in the capital.

The report added that inflated house prices were likely to continue in London due to the supply-demand imbalance and record-low mortgage rates, describing the UK housing market as a “fragile equilibrium”.

Matthias Holzhey, an economist for UBS wealth management, said: “The situation is fragile for the most overvalued housing markets. A sharp increase in supply, higher interest rates or shifts in the international flow of capital could trigger a major price correction at any time.”

Last year, just London and Hong Kong were classed as being at risk of a bubble; this year there are six global cities in that category:

1 – Vancouver

2 – London

3 – Stockholm

4 – Sydney

5 – Munich

6 – Hong Kong