London house prices most overvalued in the world, says UBS

Bank warns inflated prices are a bubble at risk of bursting with prices decoupled from incomes, and says new investors should expect no medium- or long-term gain

House prices in London are the most over-valued of any major city in the world and are in "bubble-risk territory", a report by economists at UBS has found.

Foreign investment, the help-to-buy scheme, "alluring" yields for buy-to-let landlords, and ongoing population growth have all led property prices in the city to decouple from local incomes, and there could be a "substantial price correction" if the conditions for investment deteriorated, the report said.

Related: Cost of average London home rises to 500,000

Unaffordable housing points to high dependence on foreign demand. So the risk of a price correction, should that demand weaken, is elevated, and the long-run appreciation prospects lower," it said.