An international think-tank has urged the Bank of England to reign in the UK property market by cutting mortgage subsidies.
The Organisation for Economic Co-operation and Development (OECD) has warned the central bank that house prices are becoming over valued and has suggested restricting access to government’s Help to Buy scheme.
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"Monetary policy tightening should be accompanied by timely prudential measures to address the risks of excessive house price inflation.
"Additional use of macro-prudential and other tools to help ensure a balanced recovery in the housing market and contain household leverage should be considered, including tighter access to the Help to Buy programme and the introduction of higher capital requirements or low maximum loan-to-value ratios for mortgages," the OECD said.
The Paris-based organisation upgraded its 2014 growth forecast for the UK to 3.2%, a notable increase on its forecast of 2.4% last November. Growth for 2015 was also upgraded to 2.7%, from a forecast of 2.5% six months ago.
However, the OECD warned that the housing market could overheat if measures were not taken to curb growth in house prices.
The Help to Buy scheme offers state guarantees for mortgages worth up to £600,000 ($1m).
The Bank of England has already pulled the plug on parallel scheme Funding for Lending.
The central bank said that the measure, ending cheap state loans to banks in exchange for increased consumer lending, was aimed at clamping down on rising house prices and household indebtness.
At the time, Bank of England governor Mark Carney said: "We did not see an immediate threat coming from the housing market, but we are concerned about the prospective evolution of that market in the absence of some of these changes.
"The history of housing cycles in this country and in others is that we do see instances where momentum develops, underwriting standards slip and extrapolative expectations develop amongst bankers as well as households, as well as borrowers.
"People think prices are going to continue to go up and they stretch and justify their actions on the basis of those assumptions. Ultimately those assumptions are proven false and you end up with a recession that is much deeper."
The mortgage guarantee element of Help to Buy was introduced in October 2013 and is due to end in December 2016.
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