Britain's housing market is picking up speed and while there is no sign yet of a price bubble, borrowers and lenders should beware of overstretching themselves, a Bank of England policymaker said on Wednesday.
"Let me assure you that the Bank will not be complacent about allowing financial stability risks to build through an over-expansion of the housing market," Paul Fisher, the BoE's executive director for markets, said in notes for a speech.
"Both borrowers and lenders need to be careful not to over-stretch themselves."
British housing prices rose at their fastest annual pace in more than three years in September, according to data from mortgage lender Nationwide last week. The launch next week of a government mortgage guarantee programme has added to concerns that prices might rise too fast.
Fisher also said a rise in short-term British interest rates in financial markets in recent months may have been exacerbated by poor liquidity and he said they could break free of the influence from U.S. rates which rose on expectations that the Federal Reserve would begin to slow the pace of its stimulus.
"The correlation in short rates between the UK and U.S. is unhelpful given the relatively subdued recovery in the UK and ... somewhat puzzling," he said.
"It may well be the case that these rates decouple in future as liquidity improves and the outlook for each economy develops further."
Fisher, like other BoE policymakers in recent weeks, used his speech to defend the Bank's new "forward guidance" strategy of linking record-low interest rates to a fall in the unemployment rate to 7 percent.
"It is important to stress that forward guidance is not a guarantee to hold rates where they are for a set period of time, as has been widely misreported," he said, adding the policy was helping to increase confidence.
Markets have pushed up rates since the plan was announced in August as signs of recovery in Britain's economy made investors think unemployment would fall to 7 percent more quickly than the BoE's forecast of late 2016.
The Bank warned markets in July that they were getting ahead of themselves. Fisher said on Wednesday the central bank would not be trying to guide expectations on a regular basis.
"Whatever the explanation for the recent rise in interest rates, we do not intend to maintain a running commentary on whether the market has got it right or wrong in relation to when Bank Rate will rise," he said.
"If market expectations are in the wrong place then market participants will realise that in due course and rates will adjust."