The Bank of England has warned it will clamp down on lending if it sees any sign that prices are spiralling out of control.
Deputy governor Andrew Bailey, who is in charge with ensuring financial stability in the UK, said the housing market was one of the key concerns for 2014.
The Bank is watching the market carefully, he said, and will step in to prevent a "free-for-all" in mortgage provision if this threatens the stability of the UK economy.
Bailey suggested the Bank could prevent a bubble by tightening lending criteria, in an interview in yesterday's The Sunday Telegraph.
Options include toughening up the tests buyers have to go through before they are offered a mortgage, and increasing the amount of capital banks have to hold against household lending.
Bailey is head of the Prudential Regulatory Authority (PRA), an arm of the bank that oversees mortgage lending.
It can order banks to reduce LTVs or demand they hold more money on their balance sheets to cover mortgage lending.
Bailey said: “We are watching the housing market very carefully. We’ve laid out the tools that we can use.
"That is hugely important, that we have set out our desire to see robust mortgage underwriting standards and that will be part of the approach.
"We know sadly from history mortgage underwriting standards are very cyclical.
“The thing I stress is that we will use those tools.”
Bailey said there was no evidence yet of a housing bubble, but warned lenders that he would not allow a “free-for-all” to develop in the mortgage market as banks use ultra-low interest rates to encourage people to take out loans.
This follows a 30% rise in lending over the past 12 months, according to the CML, which predicts gross lending will top £200 billion in 2014.
But that is still well below the £363 billion of gross lending in 2007.
Bailey said UK banks would face further “stress tests” in the second half of 2014 to make sure they were maintaining their capital positions.
He denied he was a “capital nutter” but said it was important banks had secure balance sheets.