LONDON (Reuters) - Although UK house prices will head steadily higher in the next two years, analysts polled by Reuters are divided over whether the Bank of England can restrain the market if it overheats.
Fuelled by government schemes to encourage buyers, British house prices have been rising at the fastest pace in at least three years, private surveys show, lending support to a nascent economic recovery.
The pace of the market upturn has led some economists to suggest that a new housing bubble could be in the offing, five years after the last one culminated in financial crisis and deep recession.
Tuesday's Reuters poll of 22 economists and analysts showed house prices should rise 5.7 percent in 2014 after a 6.5 percent increase this year, a slight upgrade from August's survey.
While that still means a bubble looks unlikely, at least in the near-term, half of respondents expressed doubt about the Bank of England's ability to restrain the market should prices start rocketing.
"The BoE will be reluctant to acknowledge that its policies have contributed to 'overheating' and so will tend to be behind the curve in moderating the market," said Stephen Lewis, chief economist at Monument Securities.
Eight respondents said they were not very confident in the Bank's ability to cool a rampant market, and three said they were not at all confident.
On the other hand, nine said they were fairly confident and one said they were very confident that the Bank could moderate a booming market.
BoE Governor Mark Carney has stressed that housing transactions are still almost a third below pre-crisis levels, and that the central bank has other tools at its disposal to avoid having to raise interest rates to tame house price rises in one part of the country.
"The Bank of England is not in the business of moderating house prices, only stopping financial instability as a result of bubbles," said Azad Zangana, economist at Schroders.
"A fundamental lack of supply in housing is driving up prices, and the only sustainable solution to this crisis is to build more homes."
Official figures last Thursday showed British house builders are working on the biggest number of new homes since the financial crisis, although economists pointed out that this still lags pre-crisis levels by a big margin.
For the most part, price rises have been concentrated around London, with near double-digit rates of growth recently. Carney on Tuesday told parliament that price rises in London and the southeast are broadening into the rest of the country.
UK newspapers often carry stories of small one-bedroom flats and even garages offered on the market for outlandish sums in central London.
Eleven out of 19 respondents said prime London property was not an example of an asset bubble.
"If we define a bubble as an unsustainable rise in prices which is likely to correct, I suspect that the London prime market is not a bubble," said Peter Dixon, economist at Commerzbank.
"The surge in prices reflects a genuine supply-demand imbalance."
Economists were split on whether the 600,000 pounds cap on properties eligible for the government's Help to Buy mortgage subsidy programme should be lowered in London to help calm the market there.
Ten respondents gave divided views on the argument.
"The problem is not confined to London. Property prices are high relative to incomes across all regions in the UK and are being inflated further. Lowering the ceiling would only help at the margin," said Philip Lachowycz at Fathom Financial Consulting.
For other stories from the poll see
Reporting by Andy Bruce; Editing by Hugh Lawson