The Bank of England must take action now to cool the housing market as the strength of the UK recovery beats all expectations, economic forecasters say.
Analysts have called on the Bank to prevent the market from overheating either by scrapping Help to Buy immediately or through an early base rate hike.
Figures from the Office for Budgetary Responsibility (OBR), published last week, showed unemployment is falling faster than the Bank originally predicted.
It predicts unemployment will average 7.1% in 2014, only a fraction above the 7% level trigger point for the Bank to consider raising base rates.
Rob Wood, chief UK economist at Berenberg Bank, said unemployment could fall even more rapidly than that. "We expect stronger growth to set in train a virtuous circle of rising productivity, pay and investment.
"At the very least the Help to Buy scheme should be scrapped immediately. The first steps last week by the Bank of England in removing the targeted housing stimulus measures are unlikely to be the last."
Wood said governor Mark Carney's recent move to reverse its position on the dangers from the housing market is an important signal. "The next 12 months will likely see further measures from the financial policymakers at the Bank."
The first base rate hike is now likely to come in the first three months of 2015, but it could come next year, said Colm Sheehy, senior economist at the Centre for Economics and Business Research.
"The OBR expects unemployment to average 7.1% in 2014, a full 0.9% below its March forecast, and reach the 7% ‘threshold’ in the second quarter of 2015.
"Our central view is that the first modest 0.25% rise will take place in Q1 2015, probably coinciding with the February 2015 Inflation Report.
"However, if the economy continues to grow above trend, as it looks set to do in Q4 2013, monetary policy could be tightened even sooner."
The Bank is starting to plot its exit from extraordinarily loose monetary policy, Sheehy said. "It has already cut back its Funding for Lending Scheme but further tightening is going to be on the agenda in the next 18 months."
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