The Bank of England deputy government has warned the house price hikes of the past year could end in a "sharp correction".
Sir Jon Cunliffe, responsible for financial stability at the Bank, said it would be "dangerous to ignore the momentum that has built up in the UK housing market" since spring 2013.
He also warned that price hikes and rising debts could lead to "a sharp correction with negative equity and an overhang of debt for many households".
Despite the fact that the latest figures for March suggest a flattening out in the growth in prices and activity, Cunliffe said that there is everything to indicate that the period of rising prices is set to continue and that the annual rate of house price growth will run into double-digit figures in the near future.
He said that it was not implausible that pent-up demand could add significantly to pressure on the market for the next few years.
"Expectations of a fast-rising market put pressure on potential buyers to get into the market as quickly as possible for fear of being priced out," he added.
"And on sellers to delay and ask for higher prices. And expectations of future increases in the value of homes can make people more willing to take on debt to get on the property ladder or to reach for that next rung."
Speaking to an audience in London, he pointed out that while households may be prepared to spend an increasing amount of their income on housing, there is a level at which house prices are simply not affordable.
He warned that the Bank's Financial Policy Committee (FPC) might have to act if house prices continue to rise.
"Whether and how to act further if, following the pause of the last couple of months, momentum continues to build, will be the most challenging judgement the FPC will have to take in the coming months," he said.
He conceded that the Mortgage Market Review (MMR) – which recently introduced new tougher rules on mortgage lending - may constrain house prices but added this has have to be tested.
Commenting on the speech, David Hollingworth, spokesperson for mortgage broker London & Country, told Moneywise: "This is not the first time that the Bank has taken a cautionary tone and emphasised that the FPC has the power to act if necessary.
"As the housing market shows signs of an upturn, and a rapid one in certain regions, it is no surprise that there is concern over whether rising house prices is storing up a potential problem."
Hollingworth welcomed the deputy governor's caution: "The fact that the debate is being had at an early stage underlines the awareness that an improved market is welcome but it must be sustainable. Demand has risen rapidly but without an increase in supply it results in upward pressure on house prices.
"The recent implementation of the MMR is timely in this context as the central aim of MMR is to prevent a return to looser lending criteria as the market picks up."
He explained: "At the last peak, lenders slackened criteria, which, in turn, enabled consumers to borrow more and prices continued to rise rapidly. The new rules put all the focus on demonstrating affordability not only now but when rates start to climb. This will place limits on the amount that can be borrowed and should help prevent mortgage lending running out of control."