The Bank of England was today urged to take "targeted and timely" action to rein in risky mortgages as the International Monetary Fund (IMF) warned house price growth could threaten the recovery.

IMF managing director Christine Lagarde called on the Bank to use powers it has been given to act as the "first line of defence" against a property bubble.

It added to pressure on the Bank to take action just weeks before it issues its half-yearly assessment on financial stability and the risks facing the economy.

The IMF's annual health check painted a rosy picture of the British economy and abandoned its previous criticism of Chancellor George Osborne's austerity policies.

But it called for a clampdown on high loan-to-income ratio home lending and Ms Lagarde said a further tightening of the market could be necessary if that failed to cool the threat of a bubble.

Ministers were also told to consider an early end to the flagship Help to Buy scheme offering mortgage guarantees and loans for those struggling to find a deposit.

Chancellor George Osborne said he agreed with the IMF "that we need to remain vigilant for any risks that might emerge in the housing market".

Ms Lagarde called for "macro-prudential" measures - policy tools available to the Bank of England - to be deployed to address the financial risk

Later this month, the Bank's Financial Policy Committee (FPC) is widely expected to announce action to cool the market, after a warning from deputy governor Sir Jon Cunliffe that it was the brightest of "blinking warning lights" of risk.

The IMF said limits on the proportion of high loan-to-income (LTI) mortgages any lender could issue "would help to contain directly the currently most pressing risks to financial stability".

"If such limits prove insufficient, outright caps on LTIs or loan-to-value ratios may need to be considered," it added.

Lenders could also be asked to hold more capital on their balance sheets to "build additional buffers" against exposure to the housing sector, the IMF said.

Ms Lagarde said action should be taken "in a gradual, flexible way" to see whether the measures worked.

"Clearly it is something that needs to be watched and depending on circumstances, on pricing levels, those macro-prudential measures should be further activated if necessary," she said.

The IMF said: "House price inflation is particularly high in London, and is becoming widespread. So far, there are few of the typical signs of a credit-led bubble.

"Nonetheless, a steady increase in the size of new mortgages compared with borrowed incomes suggests that households are gradually becoming more vulnerable to income and interest rate shocks."

Latest figures from Halifax showed house prices rose 3.9% in May, their highest month-on-month increase since 2002. It represented an 8.7% year-on-year rise.

The IMF report was broadly positive on the UK and Mr Osborne's austerity policies, which it said would not "put an undue drag on growth".

It said: "The economy has rebounded strongly and growth is becoming more balanced. Growth has accelerated since the second half of 2013, and leading indicators suggest that the recovery has momentum."

The report said the recovery, though initially led by household spending, had seen a pick-up in business investment, though exports remained subdued.

Mr Osborne said the IMF had given "unequivocal support to our economic plan". He said: "The British economy is firing on all cylinders."

Ms Lagarde qualified the Chancellor's remarks by saying that exports "could fire a little more strongly" while unemployment was still too high. But she added: "The news coming out of the UK recently has been pretty much all good."

She also gave her blessing to the Coalition's measure of the balance between revenue raising and spending cuts as it sought to repair the public finances, saying: "The current mix is sensible".

The report said: "The planned fiscal adjustment this year is appropriate."

The IMF has notched up its growth forecasts four times since last year when it warned the UK was "still a long way from a strong and sustainable recovery".

It has since upgraded forecasts four times in a row and admitted its previous predictions were too pessimistic.

But shadow chancellor Ed Balls said: "The IMF is right to warn of the risks from an imbalanced housing market where housing demand is outstripping supply."