Bank of England Governor Mark Carney has openly admitted that he is concerned about a potential bubble developing in the UK housing market.
But he favours other ways of tackling the threat aside from hiking interest rates.
Speaking in the US, Carney said he would tighten lending requirements if needed, to prevent the housing market growing at "warp speed", according to a report in The Daily Telegraph.
“There is a history of things shifting in the UK, and of the housing market moving from stall speed to warp speed, and of underwriting standards slipping. We want to avoid that.”
The Bank has already scrapped its Funding for Lending Scheme to cool the housing market, and Carney said it has a broad range of additional tools if required.
And he insisted that low interest rates were vital to allow households and businesses to reduce borrowing costs and stimulate demand.
“Short-term interest rates are much more important in the UK than they are in America, with 70% of borrowing for mortgages and 50% of business borrowing,” Carney told the Economic Club of New York.
He suggested the Bank might increase interest rates “soon”, but said it would be a mistake to rush to a more extreme response when the recovery remained patchy.
The UK is growing faster than any advanced economy, but he remain concerned over the high level of household debt, unemployment, and signs of a fresh housing bubble.
“Despite admirable progress by British households in recent years, aggregate debt levels remain high at 140% of incomes.
"In addition, housing activity is picking up and price growth appears to be gaining momentum…these developments merit vigilance but not panic.
“The Ghost of Christmas Past should not be forgotten. A recovery may be gaining pace but our economies are a long way from normal.”
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