George Osborne
George Osborne said he is alert to the debt risk from rising UK house prices Reuters

Chancellor George Osborne is telling the Bank of England not to hesitate in using the tools it has to curb excesses in the UK's surging housing market.

Figures from the Office for National Statistics (ONS) show the average price of a UK house rising by 8% over the year to March 2014, hitting £252,000.

While prices are rising in most regions, the picture is varied. Serious concern is being raised over London, where the ONS said the average price rocketed 17% to £459,000.

Higher prices mean greater indebtedness for those taking out mortgages. This presents a threat to the affordability of debt repayments when the Bank of England eventually hikes its benchmark interest rate from the all-time-low 0.5%.

It has been unchanged since it was slashed in 2009 to support the economy by keeping down the cost of credit. Those who stretched themselves with cheap credit are at risk of default when rates rise.

Christine Lagarde, the head of the International Monetary Fund (IMF), has warned on what is happening in the UK housing market. Her organisation is expected to imminently release a report building on this warning.

"I agree with Christine Lagarde that we need to be alert to the build-up of debt in the housing market. We need to be alert when we see house prices rising," Osborne said on BBC radio.

"I have given the Bank of England tools to do the job, and they should not hesitate to use those tools if they see these developments turning into a risk to the British economy."

It is the Bank of England's financial policy committee that holds the broad power to intervene if it thinks there is a threat to the system's stability.

If it wished, it could set a cap on the loan-to-income multiple, meaning mortgage applicants would not be able to take on vast debt worth several times what they earn.

Two British banks have already self-imposed a mortgage cap to this effect. Both Lloyds Banking Group and Royal Bank of Scotland will only lend out four times an applicant's earnings on mortgages worth over £500,000.

And at the end of April the Financial Conduct Authority, a banking sector watchdog, forced tougher affordability tests on mortgage lenders assessing the ability of borrowers to make repayments.