The housing market is heading for a crash with property set to lose about ten per cent of its value by 2004, an investment magazine has predicted.

Investors Chronicle said higher interest rates, rising unemployment and more expensive mortgage repayments relative to income would cause house prices to begin falling next year.

The market looked set to remain strong for the rest of this year, owing to the momentum it had built up, though this would make the crash worse when it came.

The magazine based its forecast on four economic indicators: Unemployment; real personal dis-posable income; mortgage rates; and the ratio of house prices to incomes, which were put into an economic model.

It tested how accurate the model would have been at predicting house price inflation in the past based on these indicators and found it was 90 per cent accurate, saying it would have successfully predicted the crash in the early Nineties.

Editor Matthew Vincent said: "This crash is very, very likely. Our research shows there is no mystery why house prices have risen so much recently.

"It's because mortgage rates and unemployment have fallen, real incomes have risen sharply, by 4.5 per cent during the last year, and household money holdings have soared."

This combination was unusual and typically, if unemployment fell and incomes rose, mortgage rates would go up as the Bank of England tried to reduce the inflationary pressures.

Mr Vincent said: "The main influences on house prices move in opposite directions, keeping house price inflation stable. But recently, because the bank cut rates last year, this has not been the case. A crash is possible because these upward pressures on house prices are now set to go in reverse."

Interest rates looked set to rise, with contracts pricing in a 1.5 per cent increase by the end of the next year and economists expecting unemployment to go up this year and next.