The Bank of England has advised all banks approving mortgages to carefully consider the risk of spikes in interest rates when making their decision.
The central bank has prepared tools to rein back dangerous lending.
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The Financial Conduct Authority is set to introduce tougher home loan underwriting standards in April and the central bank has expressed its hope to have the power to set the interest rate scenarios that lenders would have to consider when granting loans by June.
With house prices rising by around 10% over the past year, due in part to government schemes such as Help to Buy, the central bank said mortgages were higher as a share of home-buyers’ income than at any point since 2005.
Some analysts have opined that some of the British housing market is in a bubble and the Bank of England have committed to keeping a close watch on the sector.
"Given the increasing momentum, the Financial Policy Committee (FPC) will remain vigilant to emerging vulnerabilities, will continue to monitor conditions closely and will take further proportionate and graduated actions if warranted," a spokesperson for the bank said.
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By GlobalDataThe Bank of England’s watchdog FPC made no new formal recommendations, but it said that financial markets’ preparation for a rise in interest rates was "now at the heart of the FPC’s risk and vulnerability assessments".
