The Central Bank has been concerned about house price rises for some months now. In recent months, it has conducted a detailed investigation into the lending practices of individual managers.

This letter is the culmination of a process begun last July when the Bank wrote to all the lenders asking about their policies. It called specific institutions in earlier this year, demanding that policies be tightened, but it is clearly not happy with their response.

Mr O'Connell's decision to write a strongly-worded letter to the institutions' chairmen is a sign of the deepening concern of the Bank.

It is worried that giving borrowers extremely large mortgages could eventually lead to widespread inability to repay and possible repossessions and negative equity. "Stress tests" - tests to see where borrowers would stand if interest rates went up or their circumstances changed - appear not to be undertaken rigorously.

There have been widespread calls for new rules for deciding mortgage loans, given the new environment of low interest rates. However, in line with recommendations in the recent report by Dr Peter Bacon, the Bank said that it will discuss this only when supply pressures in the market have eased.