The Bank of England's surprise announcement that it would stop one method of housing market stimulus is one of the first tentative steps towards tightening monetary policy.
The halting of the Funding for Lending (FLS) scheme for household lending, announced on Thursday, seemed out of step with the U.K. government's plans to stimulate the housing market via the Help to Buy scheme – and repeated statements from the government and Bank of England Governor Mark Carney that the U.K. is not undergoing a housing bubble.
It marks one of the biggest changes in policy direction by Carney since he took over from Mervyn King earlier this year.
The announcement is "not an admission of a bubble, but more a sharp admonition to banks about lax standards on mortgage lending," according to Marc Ostwald, strategist at Monument Securities.
"This is actually the line of attack on financial sector reform I have been expecting from Carney ever since he was appointed."
(Read more: BoE scales back lending scheme)
U.K. house prices hit a record level in October, according to the Office for National Statistics, and are up by 3.8 percent in the year to August 2013. However, this was mainly fueled by growth in London and the South East – when they are excluded from figures, prices rose by just 2.1 percent.