Surging house prices could pose the biggest danger to the country's financial stability as it continues its recovery, the Bank of England has warned.
In a hint that further steps could be taken to cool the market, the Bank's deputy governor for financial stability, Sir Jon Cunliffe, warned: "It would be dangerous to ignore the momentum that has built up in the UK housing market since the spring of last year".
He highlighted the fact that there are several UK precedents for house price booms which have ended in a crash.
The warnings came in a week of strong housing market figures, including building society Nationwide reporting that annual house price growth is back in double digits for the first time in four years and Land
Registry data showing that around one in 13 homes in London are now selling for over £1 million.
Sir Jon said the Bank monitors several "blinking warning lights" which indicate the level of risk to the country, but the growing momentum in the housing market "is now, in my view, the brightest light on that dashboard".
Speaking at a banking dinner, Sir Jon said the market could cool naturally as rising prices push homes out of reach for potential buyers, but "at present, affordability constraints do not seem to be having a braking effect on prices".
Sir Jon added: "Unfortunately, there are more precedents in the UK for periods of a rapidly growing housing market to end in this way."
The Funding for Lending Scheme, which widened access to mortgages last year by giving lenders access to cheap funding, has now been re-directed towards helping businesses.
Sir Jon said that whether and how to act further if the housing market continues to gather pace "will be the most challenging judgement the Bank's Financial Policy Committee will have to take in the coming months".
Property analyst Hometrack said that home buyers are now paying nearly 97% of the asking price of a property, marking the highest average percentage seen in nearly 12 years.
Nationwide added that house prices have leapt by 10.9% year-on-year to reach £183,577 on average, increasing the risk that people will have to stretch their mortgage borrowing.
In further signs of property prices continuing to take off, it was reported that a penthouse in London has sold for a record price of £140 million. Penthouse D at One Hyde Park was sold to an Eastern European buyer, The Times said.
Writing on Nationwide's website, the building society's chief executive Graham Beale said house prices need to be watched "carefully".
But he added that the London property market remains a "special case" due to cash buyers and foreign investment and any measures that the Bank could possibly take "need to be measured and proportionate to ensure they don't slow the property market down too much or have unintended consequences".
Halifax has predicted that house prices will rise between 4-8% across the country this year and it said that currently it is looking towards the top end of this estimate.
Craig McKinlay, mortgage director at Halifax, said the current picture of the housing market is mixed.
He said there are some signs that the market could be slowing down, although this could be temporary, while the market adjusts to toughened mortgage lending rules which came into force under the Mortgage Market Review (MMR).
Under the new rules, lenders have to apply "stress tests" to make sure mortgage applicants can not only afford their home loan repayments now, but also when interest rates eventually rise.
Mr McKinlay said that as the MMR rules bed in, there may be a small dip in housing market activity in the next month or so, although this will not necessarily lead to a dip in prices.
Capital Economics is forecasting house prices to climb by 8% over 2014, but it thinks the pace of growth will ease back to around 5% across next year as the supply of homes starts to keep better pace with demand.
It is forecasting prices in London to grow at double the national rate over this year, with a 16% hike, but it believes annual price growth in the English capital will drop to 6% in 2015.
Matthew Pointon, a property economist at Capital Economics, said there have been some "early signs" of momentum slowing, including the Bank of England reporting this week that mortgage approvals for house purchase have been falling for two months in a row.
He said: "We are forecasting further house price gains over the next few months due to the lack of supply and strong demand."
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics), said the Bank of England appears to be showing that "it doesn't want to fall behind the curve", but he also predicted that any possible measures it could take to slow down the market are likely to be relatively small.
He said: "They might want to take the edge off, to prevent things going up at too fast a rate."
Mr Rubinsohn also predicts that house price growth will be faster over this year than next year.
He said: "Based on the feedback from members, I think 2015 will see more modest price gains."
He said of the new MMR rules: "Lenders have been put on a warning: they have got to make sure they do things properly this time."