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* BoE says EU vote uncertainty could push up borrowing costs
* Lenders asked to tighten checks on buy-to-let landlords
* Capital buffers for banks to inch up, impact seen muted (Adds reaction from mortgage lenders, economists)
By David Milliken and Huw Jones
LONDON, March 29 (Reuters) - Britain's European Unionreferendum could push up credit costs and weaken sterling more,the Bank of England warned on Tuesday, as it moved to bolsterbanks' risk buffers and slow a boom in lending to landlords.
The central bank said the outlook for financial stabilityhad worsened since its last report in November, saying a reboundin Chinese lending was "concerning" and that June 23's vote onleaving the EU was now the biggest domestic risk.
BoE Governor Mark Carney came under fire from somepro-Brexit lawmakers earlier this month for exaggerating thedangers of leaving the EU, though the central bank does not havean official position on whether Britain should remain.
The BoE's Financial Policy Committee, which Carney chairs,said on Tuesday that "heightened and prolonged uncertainty ...could lead to a further depreciation of sterling and affect thecost ... of financing for a broad range of UK borrowers."
Sterling has fallen to a seven-year low against the dollarsince the start of the year and markets price in extravolatility for around the date of the referendum.
While much of the BoE's concern about Brexit was familiar,less expected was its decision to tighten credit checks onlandlords and move ahead with a disputed plan to vary the sizeof banks' risk buffers over the economic cycle.
The immediate impact of both measures is likely to bemodest, but they indicate a policy direction and may have agreater effect over time if the Bank expands them.
Buy-to-let lending has boomed in Britain in recent years,and is now worth 200 billion pounds ($286 billion).
However, Prime Minister David Cameron's government has beenkeen to boost individual home ownership and is raising taxes onthe sector, leading the BoE to fear that banks' plans to raisegross lending to landlords by 20 percent a year might come atthe cost of credit standards.
TOUGHER RULES MAY COME
As a result, the BoE has recommended banks ensure they takenew tax rules into account when assessing loan applications,check landlords' incomes properly and ensure rental income willbe enough to cover a mortgage rate of at least 5.5 percent.
The BoE said most lenders already had similar rules, butthat it expected enforcing the rules universally would reducethe number of mortgage approvals in three years' time by 10-20percent compared with doing nothing.
"It's timid," Capital Economics's Paul Hollingsworth said,adding much of the gross lending growth was existing landlordsswitching mortgages rather than new lending. "They are doing alot of red flag waving rather than taking some serious action."
The Council for Mortgage Lenders said the measures did notappear to curtail existing market practices.
Tougher rules may come later, however, if finance ministerGeorge Osborne follows through with plans to give the BoE morefine-grained powers over buy-to-let mortgage terms, similar topowers it has already used on residential mortgages.
The BoE also said it would start to raise the new cyclicalelement of its capital framework, which rises and falls as therisk of imprudent lending changes over the business cycle, afterpolicymakers failed to reach agreement in December.
This new buffer sits on top of the minimum and is built upin good times to stop credit supply becoming too frothy, andtapped when the economy weakens and some loans turn sour.
Banks will have to hold a 0.5 percent counter-cyclicalbuffer by the end of March 2017. That is equivalent to arelatively modest 5 billion pounds for the banking system as awhole and halfway towards its neutral level of 1 percent.
Moreover, for larger banks the bulk of the increase to 0.5percent will be cancelled out by a cut in another capitalrequirement.
"While a big symbolic step, there is unlikely to be a largeimpact," HSBC economist Simon Wells said. ($1 = 0.7005 pounds) (Reporting by David Milliken and Huw Jones; Editing by TomHeneghan)
