The International Monetary Fund has sounded the alarm over the state of the housing market around the world, as it published new data showing that property prices were "well above" their historical average in many countries.
This comes as business secretary Vince Cable has asked banks to restrict the size of mortgages they offer to just three-and-a-half times an applicant's income due to concerns over Britain's overheating housing market.
Min Zhu, the IMF's deputy managing director, said that tools to deal with risks of a booming housing market were "still being developed" but warned that "this should not be an excuse for inaction".
House prices in Britain are 27% above their long-run average relative to incomes and 38% relative to rents, according to the IMF. Zhu said that house prices "remain well above the historical averages for a majority of coiuntries" in relation to incomes and rents, adding: "This is true for instance for Australia, Belgium, Canada, Norway and Sweden."
Speaking at the Bundesbank last week, Zhu pointed to options to limit housing market risks like limiting mortgage lending relative to house values and incomes, higher capital requirements for banks making risky loans and increasing stamp duty to dampen foreign demand for investment properties.
Meanwhile, the coalition has asked the Bank of England to enforce a new cap to limit the size of mortgages, as concerns mount about the state of Britain's housing market.
Speaking this morning, Vince Cable said he had been "appalled" by how big some of the loans handed out by the banks were.
"It is crucially important that the banks don't throw petrol on the fire, and traditionally most of us who been through housing booms in the past have recognised that a stable level is about three, three and a half, times peoples' income,” he told the Today programme.
"This is the key area that the Bank of England's now got to operate in, to make sure that this boom in house prices in the south of England doesn't destabilise the whole economy."
Cable's intervention comes after a survey by the Royal Institution of Chartered Surveyors found that surging house prices and stricter mortgage lending rules were starting to take some of the strongest heat out of the property market as consumers become more cautious.
In London, where fears that the market is overheating have been particularly concentrated, demand for properties from prospective buyers slipped back last month for the first time since June 2012
RICS chief economist Simon Rubinsohn said: "What we are really seeing is some of the very strong upward momentum starting to come off the housing market, as a lack of supply, higher prices, more prudent lending measures and some of the talk from the Bank of England are creating a level of caution among sellers and buyers.
"The most visible indicators of this are the revised downwards price expectations for the next 12 months and the flatter picture regarding new buyer enquiries. In particular, we're seeing the London market level off."