The International Monetary Fund (IMF) urged Britain to cool its housing market by reining in risky mortgages, the strongest warning yet from an international organisation about the risk of a property price bubble.

So far there have been few signs of a credit-driven bubble in British house prices, the IMF said.

But that could change fast and lenders should offer fewer mortgages that are far larger than borrowers' incomes, it warned in an annual report on Britain's economy published yesterday.

IMF managing director Christine Lagarde called on the Bank of England to use its powers over bank lending "early and in a gradual fashion as the first line of defence against risks ... from the housing market." If efforts to rein in the market did not work the Bank of England would need to be ready to raise interest rates fast, the IMF said.

"Policy might ... have to be tightened quickly if costs run ahead of productivity growth, slack is absorbed, or financial stability concerns cannot otherwise be addressed," it said in the report.

British Finance Minister George Osborne, who spoke at the same news conference as Lagarde, said he would stay vigilant over housing, and that the BoE should not hesitate to act if needed.

Two major British banks, Lloyds Banking Group and Royal Bank of Scotland, have already said they will no longer lend at multiples of more than four times a borrower's income for mortgages of over £500,000 ($839,500).

With a national election due in less than a year, Osborne will be keen that the Bank of England does not take steps that will hurt growth or suggest his measures to revive housing demand were misguided.

House prices have risen by more than 11 per cent over the past year according to one measure, the fastest rate since just before the financial crisis, powered by soaring London prices.

Bank of England governor Mark Carney said last month that housing was the biggest threat to Britain's economic recovery. Later this month, the BoE could add to measures it has already taken to control the mortgage market.-Reuters