The strongest warning yet regarding the risk of a property price bubble has been issued by the International Monetary Fund.

The organisation has said that risky mortgage lending should be cooled very quickly in its annual report on the UK economy.

While it said there are very few signs that a credit-driven bubble could be about to occur, it warned that the situation could change exceptionally quickly.

Concerns over lending

As a result the IMF has said that the number of home buyers who can take out mortgages that are far larger than their incomes should be reduced as a matter of urgency.

“In an environment where expectations of capital gains can quickly drive up household indebtedness – and thus systemic risk for financial institutions – more policy action is warranted,” stated the IMF.

The Bank of England is keeping a close eye on the current housing market, while other organisations including the European Commission have expressed concerns.

Various measures of house prices in the UK suggested rapid increases in May – one pointed to a rise of more than 11% while another suggested the biggest increase since 2002.

Potential solutions

The BoE will provide its own half-yearly assessment later this month and could act to try to control the mortgage market.

Chancellor George Osborne has also said that the BoE should not hesitate to act should it feel that action is necessary.

Limits on the high loan-to-income mortgages that are currently issued could provide one solution, according to the IMF.

Some banks have already acted, with Lloyds Banking Group and the Royal Bank of Scotland no longer lending at multiples of more than four times the income when mortgages are more than £500,000.

In the long term, interest rates could rise in order to combat the issue, although the BoE has not hinted that this is likely in the near future.

Focusing on managing money

At the moment, the primary focus for many families is ensuring that enough funds are available to cover essential bills.

This means careful financial management is required so that people do not spend more than they can afford.

A prepaid card is a great way of ensuring you don’t spend more than you would like as spending is limited to the amount on the card at any given moment.

The cards can easily be topped up or replaced if required, while accounts can be checked regularly online if needed.

Unlike credit and debit cards, prepaid cards are also not directly linked to a bank account, making fraudulent activity a lot more difficult.