House prices are between 10% and 30% over valued, claims the IMF in a report on the UK economy.
And although the right mix of controls are in place, the research voiced concerns that property prices could soon rocket out of control.
The study pointed at raising interest rates as the best way to rein in the market
?Accommodative monetary policy is appropriate for now, given weak inflation pressures, but policy might need to be adjusted quickly if inflation takes off,' said the report.
?Interest-rate increases may also need to be considered if macro prudential tools are insufficient to deal with financial-stability risks from the housing market.?
Although raising interest rates would curb house prices rises by putting a brake on demand, the IMF warned this policy could have consequences for home owners.
?A steady increase in high-loan-to-income mortgages implies that households are gradually becoming more vulnerable to falls in income and interest-rate shocks,' said the report.
The report also recommended the only complete solution to house price fluctuation was for the government to encourage the building of more homes to increase supply to equalise with demand and to keep house values steadier.
The comments follow reports during the past few days that show the costs of renting and buying are both increasing.
Rents in London have reached record levels that outstrip the rest of the country by at least double, according to buy to let insurance firm Homelet.
And the Bank of England reports mortgage approvals increased by 8% in recent weeks, showing that more buyers are taking advantage of the Help to Buy scheme.
A survey from online estate agent Zoopla also disclosed 92% of homeowners are confident that property prices will continue to rise by an average of 7.6% for the next 12 months.
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