The chief economist at the Bank of England, Spencer Dale has likened the UK housing market to a microwave.
Mr Dale said that the property market turns "from lukewarm to scalding hot in a few economic seconds".
His comments reiterate the concern shown by the central bank that the increase in property prices could cause a house price bubble.
Mr Dale also moved to reinforce the message that when interest rates do rise, they will go up gradually. He said there needs to be strong evidence that the recovery is sustained and wages are rising.
Mr Dale said: “You can plan for the future in the knowledge that the MPC intends to keep interest rates low until we have seen a prolonged period of strong growth, unemployment is significantly lower, real incomes are higher."
This led the Bank to end the part of the Funding for Lending Scheme (FLS) that offers incentives to banks to lend to individuals and focus solely on incentives to encourage business lending.
Mr Dale said that the rise in mortgage approvals and people buying homes was welcome but he said the bank was alive to the risks that households could overreach themselves by borrowing too much, leaving them at risk when interest rates go up.
In a speech to business leaders in Newmarket, Mr Dale said: "A healthy housing market is good for our economy and supports the recovery.
"Most importantly, it will underpin further increases in house building, which has played an important role in driving the economic growth we've seen this year and which, as a nation, we need to see.
"But let's not be naive. Anyone with more than a passing interest in British economic history is aware that the UK housing market has a sort of microwave type quality to it, with a tendency to turn from lukewarm to scalding in a matter of a few economic seconds.
"The Bank is fully aware of this risk. The good news, however, is that it's far better equipped to respond to these type of risks than in the past."
The latest Halifax house price index puts the annual rise of house prices at 7.7 per cent, the biggest annual rise for six years.
Mr Dale outlined that the Bank’s new executive body, the Financial Policy Committee (FPC) has been given the powers to intervene to stop "potential excesses in the property market which pose a threat to the stability of the financial system.”
The FPC has created a new power for regulators that will allow them to alter rules on affordability which buyers need to meet so that there is a better check in place to ensure they can repay their mortgages if rates do go up.
The FPC has also said it can force lenders to hold more capital to increase their costs so that mortgage lending becomes less attractive to them.
But Mr Dale appeared to go further, telling businesses that even then the economy would need to be improving strongly and real wages – which are currently falling as pay growth lags behind inflation – rising.
He said: "You can plan for the future in the knowledge that the MPC intends to keep interest rates low until we have seen a prolonged period of strong growth, unemployment is significantly lower, real incomes are higher."
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