Jon Cunliffe says debt is equal to 135% of household earnings but Bank's measures to limit lending will insure against crash

High household debt is a key risk to the recovery, the Bank of England deputy governor Sir Jon Cunliffe has warned, saying the Bank's measures to rein in the housing market should be thought of as insurance against a major crash.

In a speech at the International Festival for Business in Liverpool, Cunliffe said UK household debt was equal to 135% of household earnings, compared with 110% in 2000, although it reached 165% in the runup to the financial crisis. The level was markedly higher than in other European countries and on a par with the US, he said.

Last week, the Bank's financial policy committee (FPC) laid out the first limits on the mortgage market in 30 years, to limit risky lending. Lenders must check that mortgage applicants can cope with a rise of three percentage points in interest rates – slightly tougher than current affordability checks – and from October there will be a 15% cap on the number of mortgages that banks and building societies can give to people who want to borrow more than 4.5 times their income.

Cunliffe, in charge of financial stability at the central bank, said the main risk from the housing market was that house prices would continue to grow strongly and faster than earnings and lead to more household debt: "In short, the risk that more people take on higher debt relative to their income as they have to stretch further to buy homes."

"An outcome in which house prices grow more rapidly relative to income and do so for longer is … quite plausible," he said. "It has certainly happened before in the UK. We know the pressure from demand for homes is great and that the supply of new homes is quite weak. "The stress test of the major UK banks towards the end of the year will assess the resilience of the system to a major crash," he said.

"The steps taken last week are insurance against the possibility of a sustained boom in the housing market leading to a substantial increase and concentration in household debt that could make a crash more likely and more severe."

His comments came after figures from Nationwide, Britain's biggest building society, showed that the average price of a property in London had risen by more than a quarter, to £400,404, over the past year, a rate of growth not seen since the summer of 1987.

In an earlier interview with BBC Radio 5 Live, Cunliffe identified the housing market as the "biggest risk" to the UK economy. A few days ago he warned said that Britain's obsession with home ownership could leave the Bank powerless to control household debt .

The International Monetary Fund has told the government that rapidly growing house prices are the biggest threat to the UK's economic recovery.