'Dangerous' to ignore house price boom, warns BoE deputy

This would risk a “major overshoot in prices and build-up in debt, followed by a sharp correction with negative equity and an overhang of debt for many households,” he said. “This is a movie that has been seen more than once in the UK.”

Mr Cunliffe, who is in charge of financial stability at the Bank, suggested that it might have to take radical steps to curb the recent housing boom, which could include introducing a proportional cap on how much Britons can borrow.

Mr Cunliffe told an audience in London on Thursday that there was also evidence that the Government’s Help to Buy Scheme could be pushing up prices.

He said that while mortgage approvals had fallen for two straight months, if the pace of annual growth were to continue, approvals would reach the pre-crisis average of 120,000 per month before the end of the year.

“There will always be a number of blinking warning lights – risks generated at home and risks coming from abroad – on our dashboard,” said Mr Cunliffe. “The growing momentum in the market is now in my view the brightest light on that dashboard.”

Mr Cunliffe said the Financial Policy Committee could recommend a further tightening of rules, such as imposing limits on loan-to-value ratios as soon as the next committee meeting in June. While such strict rules re commonplace in countries such as Hong Kong and Canada, they would be unprecedented in the UK.

Earlier this week, Spencer Dale, the Bank’s chief economist, admitted that the Bank was “nervous about what is going on in the housing market”.

The ability of British lenders to weather a 35pc house price crash was also placed at the heart of recent stress tests published by the Bank.

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