There are fears that some of the proposals in the Bacon report, particularly those in relation to the mortgage market, could prompt further increases in house prices.

The Central Bank has stepped up surveillance of lenders to ensure that they are not over-lending or stretching the guidelines too far. Most lenders say they lend 2.5 times the main gross, or before tax, salary, as well as once the second salary, but these limits are often breached.

Despite a call from economist Dr Peter Bacon to change the way the guidelines operate, the extent to which the current code is being breached worries the Central Bank.

Conservative lenders will only breach the limits for those on higher incomes who have significant choices about how they wish to spend their disposable income.

At this end of the market, it could come down to a choice between a second or third fairly exotic holiday or a larger mortgage. At the other end, the birth of a child could affect some people's ability to make repayments.

Martin Walsh, head of lending at EBS, thought to be among the more conservative institutions when it comes to lending, says there is very little scope for extending credit for people on lower incomes as they need a certain amount of money to live on, typically between £1,000 and £1,200 a month for an ordinary couple with some commuting and other small expenses. "But those on substantial incomes have more leeway and have choices on how to spend that extra income."

The Government will look at the proposal to move to net rather than gross lending, effectively allowing people to take on larger mortgages. The Central Bank is opposed to such a move but says it will look at it in detail. Other Lenders, such, as Irish Nationwide and First Active, are thought to be in favour of the change, as are many mortgage brokers. The issue is likely to be the subject of intense debate in the industry over the coming weeks.

Net lending means a loan is based on the repayments a person can afford out of their net, after-tax income, rather than simply on a multiple of their gross, before-tax salary.

Even opponents of this method admit it makes sense. The problem is that it is based on the interest rates the day the loan is taken out. With rates at all-time lows, this could spell danger if they were to increase rapidly.

That is why most lenders would say the move would have to be accompanied by a switch to longer term fixed rates. Most borrowing is based on variable rates or one-year fixed and this would probably not provide enough comfort for the lenders. Loans of five or even 10 years could be demanded if the borrowers want to be assessed in this way.

From the Government's point of view, the most attractive aspect of moving to net lending is that it will allow far larger loans to be assumed and increase affordability.

According to some in the industry, it would mean a couple working as, say, teachers, could afford the cost of a new home with a value of around £101,000. If the couple are both earning £20,000, under traditional guidelines they could borrow £70,000, leaving a very large lump sum of around £40,000, allowing for expenses, to buy the average new home.

On the net basis, the amount lent could vary from £117,000 to £159,500, depending on whether a rule of 45 per cent of net income is allowed or 33 per cent.

These figures are based on a 20-year mortgage at a current variable rate of 5.5 per cent and an individual after-tax income of £1,220 each for the couple.

Either method would leave the couple easily in a position to buy the average new home. The respective repayments would be £804.82 or £1,097.18.

It is understood one lender has operated the 45 per cent rule, but many other lenders warn this is likely to lead to significant overstretching of many buyers.

The other problem the Government and Central Bank will be looking at is that a change in lending criteria may boost the prices of starter homes as more money would be chasing a limited supply.

Indeed, if the measures were simply introduced without the supply problems having been first addressed, further house price inflation is the most likely result.