Quizzed by the Treasury Select Committee yesterday, Bank of England governor, Mervyn King re-stated what many home owners might dread: what goes up could also easily come down.

"The chances of house prices falling are greater than they were," he said. "Anyone who is proceeding making the assumption that house prices always go up because they've gone up over the past five years, that's not a very sensible way to think of the risks involved."

However, although King said the current level of house prices was "unsustainable" he also said the housing market could cool without the needs for falls in prices.

"The balance of risks is that there would be some downward adjustment in the next few years [but] it is hard to judge whether house prices would fall or not," he told the MPs.

"We do draw some comfort from the fact that lenders seem to have learnt from excessive lending in the past. It does not appear that they have lent on loans-to-value ratios so high that if there were an adjustment in house prices a large number of people would find themselves unable to meet their [mortgage] payments."

King also denied the bank had abandoned its policy of gradual interest rate rises claiming that the month on month rises in may and June was considered less shocking than a half per cent rise in one go.

Previously the bank had been raising the interest rate by a quarter point every three months since last November, roughly in line with market expectations of a level of 5% by the end of the year. This month’s double whammy had given economists cause to believe the Bank had dropped its ‘gradualist’ approach.

Asked if this was the case, King said: "No ... I don't think we have," adding that the Bank had never said gradualism meant increasing interest rates by a quarter percentage point every three months. "What we had changed was our view about the outlook for inflation," he said.