China will act hard against home loans raised in the grey market to ward off risks, a central bank official said Saturday.

The practice of granting loans by real-estate developers and agents to home-buyers to pay down payment increases risks to the property market and financial system, said Pan Gongsheng, vice governor of the People's Bank of China (PBOC), at a press conference on the sidelines of the annual parliamentary session.

The central bank will work with other government agencies to rectify the problem, he said.

The PBOC lowered down payment requirements for home purchases in most cities in February to help resolve piling inventories in the property market, which, however, prompted an unexpected wave of property buying in large cities with illegal home loans emerging.

In addition, Pan urged local commercial banks to take differentiated home mortgage policies to meet various conditions as more than 70 percent of the unsold homes come from the third and fourth-tier cities.

Home mortgages only accounted for 14 percent of bank's total loans with a safe bad loan ratio of 0.38 percent, Pan added.