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Policymakers fear a spiral in debt as households overstretch themselves to be able to buy homes, leaving many at risk when ultra-low interest rates eventually rise.

Mr Dale acknowledged that the thaw in housing transactions after they went into "deep freeze" during the recession was welcome - on a day when official figures showed a rise in house building helped the construction sector return to growth in October. But he made clear that the Bank was alive to the risks, echoing remarks by Bank governor Mark Carney that it is prepared to intervene in the housing market should it appear to be running out of control.

Latest figures from Halifax showed house prices surged by 7.7% annually in November, the fastest rate in six years.

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 Bank's new Financial Policy Committee (FPC), which oversees the resilience of the financial system, has powers to curb "potential excesses in the property market...which pose a threat to the stability of the financial system", Mr Dale said.

Last month, the Bank tried to put the brakes on the property market when it said a joint initiative with the Treasury to encourage mortgages would be scrapped - though the Funding for Lending scheme incentives for loans to business would continue.

The FPC is also creating a new power for regulators to be able to vary the affordability criteria that home buyers must meet, to ensure that they can afford to service mortgages if interest rates rise. It has also said that it could force lenders to hold more money on their balance sheets in order to dampen down an over-heated market.

Prices up 8% in 2014

A further report this week claims that asking prices for a property in the UK could rise by up to 8% next year unless the growing demand is countered by sufficient supply.

The Rightmove report states the market needs to redress 2013's imbalance of 2% rise in new listings versus 13% jump in transactions. It also noted that the time-lag between transaction growth and new listing growth has led to a further squeeze on property supply.

Rightmove forecasts that with confidence and mortgage lending at five year highs, property transactions could surge as much as 10% to hit around one million in 2014.

In December, house prices fell 1.9% month-on-month to GBP 241,455. This was the smallest December fall since 2006. This outcome indicates that the housing market recovery is gaining momentum.

Year-on-year, prices increased 5.4%. Prices in London could rise by another 6% and the South East by up to 10% due to the London ripple effect.

Rightmove Director and housing market analyst Miles Shipside said that he does not see a housing bubble forming in London due to Help to Buy, the government-backed mortgage guarantee scheme for existing homes.

"Agents report low take-up of phase two of Help to Buy in London and the South East as mortgage repayments for many properties are not affordable for buyers with only a 5%