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King issues fresh house price warning

Bank of England governor Mervyn King issued a renewed warning last week over house prices, but said a return to the devastating problems in the early 1990s was unlikely.

King reasoned that house prices were not at a sustainable level and that a sharp fall is imminent.

The governor moved to allay fears of a housing crash by saying there was no worry of borrowers getting trapped in negative equity but argued that homebuyers needed to be aware that price falls are possible.

King suggested that lender caution over 100% mortgages had reduced the danger of a return to negative equity.

Despite concerns over the state of the housing market, King indicated that the Bank is set to push interest rates higher, though no increase is expected until August.

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