Britain's housing market could be more sensitive to interest rate changes than its continental counterparts, a report has found.

The Treasury study identifies house price trends, the level of mortgage debt, high levels of owner occupation and the ability of households to withdraw equity from housing as the key potential differences between the UK and continental housing markets.

Long term house prices in Britain have risen at around 2.5 per cent a year over inflation, double the level seen in France and Italy.

And in Germany real house prices are found to have barely changed. It notes that recent strong rises in house prices have been a key factor in determining British interest rate levels.

Eith interest rates set for the euro areas as a whole, there is a warning that "a common monetary policy could induce some relative instability in the UK housing market and households' spending".

Mortgage debt levels in the UK are "well above the EU average" and are exceeded only by Denmark and the Netherlands.

And over 60 per cent of new UK mortgages are based on variable interest rates, while in Germany 80 per cent are at fixed long term rates and in France the figure is 60 per cent.

"The UK's level of mortgage debt and its greater reliance on variable rate mortgages imply that the sensitivity of housing-related interest payments to changes in interest rates is higher in the UK than in any other EU county, and far higher than in other large EU economies," said the report.

However, the background study also cautions that "past relationships may not be a good guide to what might happen if the UK were to join EMU".

It suggests that established patterns of behaviour could change, although there is so far little evidence of this in housing markets on the continent.