The London property market is the most overvalued in Europe and is at risk of a bubble due to "explosive price behaviour"
Swiss bank UBS said that soaring prices in London have blown up a "bubble-risk" that puts the capital in greater danger of a correction than any other major global city.
It said the bubble has been fuelled by foreign demand from investors seeking safe-havens, the Government's Help to Buy scheme and "alluring yields" on buy-to-let investments.
With demand continuing to outstrip supply, the combined effect has driven London house prices to new heights as demand continues to outstrip supply.
UBS urged investor caution as London now risked a "substantial price correction should the fundamentals for estate investment deteriorate".
London property is now the second-most unaffordable of the 15 cities studied by UBS, behind only Hong Kong.
But London was still judged to be more overvalued in Hong Kong.
UBS said: "Price-to-income and price-to-rent values have surged to all-time highs even as real earnings have fallen 7% in London since 2007."
A skilled service-sector needs the equivalent of 14 years of average earnings to afford a two-bedroom flat.
This compares with more than 20 years in Hong Kong but less than five years in Boston and Chicago.
UBS gave London an "index score" of more than 1.5 and added: "Between 1985 and 2009, whenever the index exceeded 1.0 ... a real price correction of on average 30% began within three years 95% of the time."
The London property market continues to soar, with the average price hitting nearly £500,000.
But there are signs of a slowdown in the top-end of the market with a sharp fall in sales of million-pound houses.