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LONDON, April 3 (Reuters) - Activity in Britain's housing market is still much weaker than would be expected in a fully functioning market, according to a Bank of England policymaker who played down fears of a housing bubble.
Monetary Policy Committee (MPC) member Ian McCafferty told the Irish News in an interview published on Thursday that talk of a housing bubble was fueled by rocketing prices in London but prices rose at a much weaker pace elsewhere in Britain.
"Yes we are seeing a revival but transaction levels are still below those that you would expect from a fully functioning vibrant market," he told the newspaper based in Cookstown, Northern Ireland.
Data on Monday showed British mortgage approvals slowed markedly to just over 70,000 in February, still short of levels of around 90,000 a month seen before the 2008 financial crisis.
But house prices are rising rapidly, up around 10 percent on the year by some measures.
Echoing previous interviews, McCafferty mentioned the spring of 2015 in connection with the first interest rate hike from a record low 0.5 percent.
"The City of London and the financial markets expect that the first rate rise will come some time in the spring of next year," he said.
"Even once that happens, we are well aware of the particular sensitivities in the economy starting from such a low bank rate. We expect to see rates rise only gradually," he added.
McCafferty also repeated recent views from Bank of England Governor Mark Carney and fellow MPC member David Miles that interest rates are unlikely to return to their pre-crisis average in the coming years.
"If you go back 20 years prior to the crisis, the average bank rate was not far short of 5 percent but we do think that the equilibrium rate may well be materially lower," he said. (Reporting by Andy Bruce; Editing by Tom Heneghan)