LONDON (Reuters) - Britain could be heading for a another housing market crash if thousands of buy-to-let investors ditch their properties as prices tumble, according to top fund manager Nicola Horlick.

The City "Superwoman" reckons defaults on buy-to-let mortgages, which make up around a tenth of the market, could be the trigger for a slump as investors cut their losses and let banks repossess their properties if house prices fall.

"If you've borrowed 90 percent of the money and you've only put in 10 percent yourself but prices fall 12 percent, it's in your interest just to leave it in the hands of the bank isn't it," Horlick told Reuters in an interview.

A raft of surveys have already shown house price inflation easing as homebuyers find it more costly to take out loans, and data from mortgage lender Nationwide showed prices last month fell at their sharpest rate in 12 years.

Analysts predict a report from rival lender Halifax this week will show house prices were flat last month, and many in financial markets are betting on a sharp fall in prices next year.

"I think the property market is still at a vastly inflated level and it's likely to fall," Horlick said. "We could be in a stagnant residential property market for two, three or maybe even four years."

Most analysts agree the housing market is ripe for a correction and expect prices to soften, but many are sceptical the UK will have a re-run of the housing crash that preceded a deep economic recession in the early 1990s.

Policymakers are keeping a close eye on how the housing market pans out as a sharp slowdown could damage consumer morale and hurt spending, but the Bank of England has been reluctant to cut interest rates so far while price pressures are building.

Financial markets are pricing in a 50-50 percent chance of a cut from 5.75 percent this week.

Horlick, who earned the "Superwoman" nickname for combining a high-flying City career spanning more than two decades with being a mother of six children, says investors' best bets for 2008 are gilts and blue-chip stocks.

"I think safety first at the moment. This could be the year when you make money out of bonds, so some long-dated gilts and big, blue-chip FTSE stocks."

These kinds of firms are often overlooked but are better placed to weather an expected economic slowdown as consumers tighten their belts, Horlick reckons.

Stock markets have taken a battering as investors fled to the safety of government bonds on fears that heavy financial losses stemming from US sub-prime mortgage lending will spill over into the wider economy.

Britain's FTSE-100 index has gained just 1 percent so far this year, after last year's stunning 11 percent appreciation.

"I would probably invest in large blue chip companies in America and the UK because they're relatively cheap, they've got relatively high yields and they've got relatively secure earnings growth," Horlick said.

"In America, they've got the benefit of a very weak currency, which is helpful, and they're a bit overlooked."

Long-dated gilts are also a good investment, Horlick believes. However, some analysts reckon demand for safe-haven assets since the credit crunch hit in August has left bonds looking dear.