Ralph Atkins / Financial times

Lending to eurozone consumers for house purchases grew at an annual rate of 10 per cent late last year - the fastest since early 2000 - reflecting soaring house prices in many parts of the region.

The European Central Bank figures released on Friday highlighted the impact low interest rates and new financial products have had on Europe's property market, and raised hopes that the effects could feed through into stronger consumer spending to boost economic growth.

But the strength of consumer borrowing also creates a headache for the ECB, which will worry about the long run impact on price stability. Next week it is expected to hold its main interest rate steady at 2 per cent for the 20th month running.

The ECB said lending to households for house purchases grew at an annual rate of 10 per cent in November and December - a pace of increase not seen since the second quarter of 2000. Previous figures had shown a growth rate of 9.9 per cent for November.

According to the 2004 European housing review released earlier this week by the Royal Institution of Chartered Surveyors in London, France now tops Europe's house price inflation table, followed by Spain and then the UK and Ireland.

With clear signs of its housing market cooling, the UK was the only country to see its new mortgage market contract, the RICS said.

Several eurozone countries saw double-digit growth in house prices last year but Germany's housing market remains in the doldrums.

Julian Jessop, economist at Capital Economics in London, said the eurozone pick up in housing was one of the "few signs of an improvement in domestic demand". Relatively low levels of debt meant there was significant potential for a pick up in consumer spending.

As well as low interest rates, activity in the housing market had been helped by the euro's introduction, Mr Jessop added. "One of the reasons why the German housing market is so soft is because, at the margin, Germans have preferred to buy elsewhere," he said.

Jonathan Hoffman, European economist at the Royal Bank of Scotland, said the development of financial markets in countries such as France and Italy was comparable with the relaxation of mortgage restrictions in the UK in the early 1980s - which encouraged a housing boom.

"People [in France] are starting to take a leaf out of the UK and US book and take the equity out of their homes, and move house," he said.

An increased use of variable rather than fixed-rate mortgages in eurozone countries would reduce structural differences with the UK housing market - and also increase the impact of interest rate hikes by the ECB on consumer behaviour.