Last checked at 
* No change to government Help to Buy mortgage scheme
* BoE asks for more powers to rein in home loans, buy-to-let
* Banks to be told new leverage limit by end of month (Adds reaction from lenders and economists)
By David Milliken and Huw Jones
LONDON, Oct 2 (Reuters) - The Bank of England gave a cleanbill of health to Britain's flagship mortgage guarantee schemeon Thursday, sparing the government from potential embarrassmentin the run-up to a national election.
But it asked for new powers to curb risky mortgage borrowing- including funding for buy-to-let investments for the firsttime - and said it would speed up plans to limit how much bankscan lend relative to their capital.
When the BoE took over regulating Britain's financial sectorin April 2013, it shied away from the politically sensitive jobof limiting how much Britons could borrow to buy a home.
Since then, house prices have jumped by 14 percent and theBoE's new Financial Policy Committee has grown in confidence.
The government of Prime Minister David Cameron asked the FPCto pass verdict on the Help to Buy mortgage guarantee scheme itlaunched late last year as a way to help home-buyers who couldafford mortgage repayments but lacked a large deposit.
The plan was criticised at the time by opposition lawmakersand many economists for its potential to push up house prices,which have since risen by around 10 percent.
The BoE said on Thursday that Help to Buy was not to blame,as it only accounted for around 5 percent of mortgages and wasmost used in regions where house prices had risen least.
"The scheme does not appear to have been a material driverof (house price) growth - for example, take-up of the scheme hasbeen weak in London where house price growth has beenstrongest," the central bank's Financial Policy Committee said.
The FPC said house prices were cooling sooner than it hadexpected a few months ago when it urged banks to restrict sometypes of mortgage lending, and said Help to Buy had not led tolooser lending standards.
Britain's housing market remains on the political agendaahead of next May's national election. Cameron this weekannounced new measures to make cheap homes available to youngerhome-buyers.
NEW POWERS
The FPC on Thursday formally recommended that it be giventhe legal power to cap how big a mortgage Britons can take outrelative to their income and the value of their home.
Finance minister George Osborne said in June that he waswilling to give the BoE this type of power, and on Monday hesaid that he wanted to get this into law before May's election.
The FPC can already recommend loan-to-value andloan-to-income caps on residential mortgages, and in June iturged banks to issue no more than 15 percent of mortgages atloan-to-income ratios above 4.5 times a borrower's income.
On Thursday, it said it wanted the legal power to forcebanks to comply, and to extend these restrictions to buy-to-letmortgages used by property investors. Restrictions onhome-buyers' mortgage borrowing should take into account theirtotal debt, not just the size of their mortgage.
The FPC said it wanted the powers to cover future risks fromthe housing market and not because it wanted to use them now.
For buy-to-let mortgages - which make up 12 percent of newlending - it will apply an 'interest coverage ratio' to ensurethat rental income from a property is comfortably higher thaninterest payments. Easy access to buy-to-let mortgages forprofessional investors has been blamed by critics for making itharder for others to buy their own homes.
The Council of Mortgage Lenders, an industry body, said ithoped the FPC would be clear about what exactly could triggerthe implementation of tougher rules.
"We are not anticipating that the granting of thesedirective powers would mean they would immediately be used,"said CML director-general Paul Smee.
Simon Wells, chief UK economist at HSBC, said the BoE's newpowers could make it the target of public ire.
"Such powers will take the BoE into new territory. The BoEpreventing someone from getting a mortgage that the market wouldotherwise have been willing to provide has the potential to bevery unpopular," he said.
Earlier this year, BoE Governor Mark Carney said a furtherbig build-up in mortgage debt - which is already at a high level- was the greatest single threat to a sustainable recovery.
($1 = 0.6199 British Pounds) (Editing by Catherine Evans)
