"If base rates reached 6%, isolated and specific sectors of the market would be affected, but we don't see widespread problems. We see 6.5% as the real danger point, when the average household could go into deficit with basic monthly running costs no longer covered by income."

A second survey - the FT House Price Index - highlights the degree to which London property prices, up by 15.3% in a year, are out of step with the rest of England and Wales. It says both North and West Midlands regions actually recorded house price falls in the last three months or more.

And a nationwide analysis of the July market from agents Chestertons confirms the idea of parallel housing markets: London and other parts of the country.

Says Chestertons: "The divergence in property prices between the top 20% of the market and the bottom 20% of the market continues to grow. While both ends of the market saw acceleration compared to a month ago, the top 20% grew by 3% while the bottom 20% grew by 1.8%.

"The top 20% of the market is now worth 2.5 times more than the bottom 20%."

The gulf in values is underlined by Chestertons' analysis of dearest and cheapest places to buy a home in Britain.

The most expensive five local authorities are Kensington & Chelsea (average price £747,031); Westminster (£531,000); Camden (£491,600); Hammersmith & Fulham (£450,327) and Islington (£402,300).

Cheapest are Merthyr Tydfil (£78,960); Kingston-upon-Hull (£84,400); Stoke-on-Trent (£85,599); Blackburn with Darwen (£86,100) and Blaenau Gwent (£89,227).

Chestertons says the average home costing £196,096 is up 10.6% in a year: detached houses average £259,200, semi-detached houses £162,000; terraced houses £134,700 and flats £161,800.

Cheapest regions are Yorkshire & Humber (average price £132,300); North East (£134,500) and North West (£137,000). Dearest are South-West (£198,000); South East (£224,300) and London (£339,600).

However Chestertons report says "There are some signs the London market is cooling to a similar level to that of the rest of the country."

And it warns: "The impact of the recent flooding will not yet be present in these numbers, but a fall in prices in some areas is likely to be seen in the coming months. In the long term, the impact of higher insurance premiums will suppress prices further in worst hit areas and for other properties build on flood plains."

Says Chesterton chief executive Robert Bartlett: "There are a number of properties which have been on the market for a number of months where prices have come down quite a bit.

"There were a lot of very high prices quoted by vendors earlier in the year when they were taking a flying punt. They didn't really need to sell.

"Properties are now being advertised at lower prices than in April and May, but they are still realistically a bit higher than they would have been a year ago."

Bartlett says a two tier housing market is emerging largely because: "Buyers at £5 million are hardly interest rate sensitive. They only take a mortgage in many cases because they have better uses for capital.

"By contrast, on homes up to £1.5 million, buyers tend to buy out of earned income and are quite highly leveraged with borrowings. They are no longer immune to rate rises.

"Most people with a £500,000 home have a mortgage of 60%-70%, possibly even higher. If inflation creeps up, balancing their household finances becomes more tricky."

Chestertons says the average price of a home owned by a retired person has risen by £11,500 since July 2006 to nearly £145,000. Unskilled manual workers, by contrast, are living in homes worth £109,400, and may be hard-hit by rising costs of their mortgage.

Meanwhile, nothing and nobody has managed so far to apply the brakes to housing markets in Scotland and Northern Ireland.

Chestertons says Scotland - average home price £140,900 - is up by 21.3% in the last year. Northern Ireland, at £172,765, has seen an astonishing surge of nearly 47%.

Even if Government targets to increase the output of new homes to 240,000 per year by 2016 are met, says Chestertons, the average house price could easily hit £460,000 by 2025, even if inflation stays below 5% in 2016- 2025.

:: INVESTORS SEE NEW POTENTIAL IN FLATS OVER SHOPS

Although most High Streets have plenty of empty rooms above shops and offices, few owners have been able to turn them to a profitable use - but all that could change as investors start to see these properties in a new light.

David Whittaker, managing director of specialist mortgage broker Mortgages For Business, says flats and other residential property above commercial premises have traditionally been difficult to finance.

Only professional landlords with substantial portfolios ever managed to get loans on them - usually by using more expensive commercial mortgages.

Lenders have traditionally been scared off by the prospect of smell, noise and unsocial working hours in premises beneath the flats.

However, while rising interest rates make it harder for landlords to buy in the mainstream market, secondary property is looking a more enticing prospect.

Keystone Mortgages, a specialist lender partially funded by Bradford & Bingley, is financing loans on flats above the shop on case-by-case basis, after pondering each application on its merits.

Jonathan Moore at Mortgages for Business says flats above commercial premises can be 15% cheaper - measured on price per square foot - than in purely residential blocks.

"For a lender to be interested, these flats have to be leaseholds," he says. "If the freeholder is the shop owner, there is no guarantee he will maintain the flat above."

As an example, Moore quotes a two bedroomed flat in a central location above a food outlet in Tunbridge Wells , Kent, at £225,000. The outstanding lease must be at least 25 years - and Keystone needs to see a rent of at least 110%-120% of monthly interest payments on the mortgage, to a maximum 85% of loan to value (LTV).

Keystone's two-year fix at 5.99%, comes with a 1.75% of loan arrangement fee, while the two year discounted rate of 6.24% costs a 1% arrangement fee.

Says Moore: "Flats above commercial properties tend to be quite large, and can show quite good yields. In fact, professional landlords are looking at houses of multiple occupation (HMOs) and above commercial premises because yields on standard properties in the mainstream market are squeezed."

Moore says some buy to let lenders have been amending their lending criteria: if an investor puts down a large deposit, usually at least 25%-30%, some lenders disregard both potential rental income and the investor's income.

Says Moore: "Although some lenders are removing a lending safeguard, the risk on these borrowing levels is relatively low."

:: INFORMATION: Mortgages for Business (0845 345 6788 and www.mortgagesforbusiness.co.uk).

:: WHEN FIRST TIME BUYERS WILL NEED A MILLION

If house prices continue to rise at their current rate, it won't be long before first time buyers have to spend £1 million on their first home.

A survey from Stroud & Swindon Building Society says that figure will be reached, in Greater London and Northern Ireland, by 2018, if current price trends continue.

But the £1 million starter home could require a first time buyer income of £136,000 - which suggests that many consumers will either never buy a home, or be forced to put off other life goals such as marriage and children to get a foothold on the property ladder.

On current trends the £1 million starter home should arrive in the South East in 2022, South West (2023); East Anglia (2024); East Midlands, North East, Wales (2026); West Midlands, Yorkshire & Humberside (2027); North West (2028) and Scotland (2031).

Says Stroud & Swindon sales director Paul Chafer: "Most people assume they will own their own home at some point in the future. However, our research suggests that our children are going to find it very difficult to afford it."

ends