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* BoE toughens mortgage affordability tests, lending rules
* Only 15 pct of new UK mortgages to exceed 4.5 LTI ratio
* Carney says measures will not affect rate rise plans
* GRAPHIC: House prices vs earnings http://link.reuters.com/fyg34s (Writes through, adds bank and analyst reaction)
By Ana Nicolaci da Costa and Huw Jones
LONDON, June 26 (Reuters) - The Bank of England imposed itsfirst limits on how much most people can borrow to buy a home onThursday, in a bid to stem increasing levels of debt and rapidlyrising house prices.
The move makes Britain the biggest economy to date to imposemortgage lending curbs as it tries to stop a repeat of the typeof housing bubble seen in the United States and other countriesbefore a 2007 bust that triggered the global financial crisis.
Immediate questions were raised as to whether the measureswere tough enough, however, and shares in housebuilders jumpedmore than 5 percent on relief the moves were not more stringent.
Some form of action to cool double-digit price growth in thehousing market had been widely anticipated, and the Bank saidmore would be done if Thursday's moves prove insufficient.
Sterling rose towards a six-year high on the prospect thatthe central bank will ultimately have to raise interest rates.
The BoE's Financial Policy Committee said that from October,it would only allow 15 percent of new mortgages to be atmultiples higher than 4.5 times a borrower's income, and thatall lending would be subject to extra affordability checks.
"(These steps) will prevent lending getting too far ahead ofincome growth and they'll prevent a slide into riskier lendingand higher indebtedness that could undermine the economicexpansion," BoE Governor Mark Carney told a news conferencepresenting the measures.
Britain's housing market has rebounded sharply following thefinancial crisis, thanks to record-low interest rates, fallingunemployment and government-sponsored credit schemes.
But policymakers have become increasingly concerned aboutmomentum in the housing market, with prices growing at around 10percent annually in Britain and at nearly double that rate inLondon, where cash buyers from abroad are also fuelling demand.
Late last year the BoE made mortgage lending ineligible fora loan subsidy scheme. Revamped affordability tests which cameinto effect in April are also starting to drag on lending.
But the British Bankers' Association said the new loan capwould not have a big impact on its members' current lending,though it could limit future house price growth.
Around 10 percent of current lending is at a loan-to-incomeratio above 4.5. That rises to around 20 percent in London, butfew lenders focus just on the capital so most can offsethigher-risk lending there with less risky lending elsewhere.
"I don't think it will bite on the economy in the short termbut it's a backstop that's been put in place," said BBA chiefeconomist Richard Woolhouse.
LITTLE IMMEDIATE EFFECT
Carney described the measures as a "firebreak" which he didnot expect to have a significant impact until next year andwhich were designed to allow weak wage growth to catch up withpast house price rises.
"If that wage growth doesn't come through ... the cap wouldbite more quickly and it would (have) consequences for prices."
He stressed that it was debt levels not price rises thatwere the main target of the measures imposed by the BoE'swatchdog on financial stability. "We don't target house prices.The question is indebtedness."
He said the measures would not affect the central bank'sdecisions on interest rates, which many in the markets thinkwill start to rise by the end of the year.
"They're less likely to have implications for the path ofmonetary policy which currently anticipates limited and gradualrate rises over the forecast horizon," Carney said.
British government bond prices fell after this comment andexpectations for an early rate rise increased slightly.
"There were some people in the market either expectingmeasures that were a little tougher, or who had thought that byimplementing the FPC measures the (BoE) could afford to take itstime in assessing ... rates," said Marc Ostwald, strategist atMonument Securities.
OSBORNE APPROVES
The Bank's move comes less than two weeks after financeminister George Osborne said he would give the BoE full legalpowers to limit mortgage lending, something seen as giving thecentral bank political cover to impose tougher measures.
The latest steps are unlikely to limit many people's abilityto buy a home in the run-up to a national election in May 2015.
Osborne welcomed the new rules, and said no loans under thegovernment's Help to Buy scheme - which guarantees highloan-to-value mortgages - would be issued at an LTI ratio above4.5.
Fewer than 5 percent of Help to Buy mortgages currently areissued for ratios above 4.5.
Carney has stressed in the past that the only way ultimatelyto improve stretched housing affordability in Britain is tobuild more homes - something the opposition Labour Party hascriticised Osborne's Conservative coalition for failing to do.He has also said the Bank has no power to stop the cash buyershelping to fuel sharp price rises, especially in London.
The FPC also recommended that affordability tests introducedin April should be toughened. Borrowers will from Thursday haveto show they can repay the home loan even if interest rates rise3 percent, compared with at least 1 percent previously.
Carney said the FPC was ready to take further steps iflenders appeared to be breaking the spirit of the rules andallowing credit standards to deteriorate.
"This is the limits of our tolerance and that's why there isa cap in place. We will evaluate, if we need to recalibrate, wewill," Carney said.
But economists judged the measures to be relatively mild.
"The steps announced by the Financial Policy Committee (FPC)today ... are likely to slow down modestly the housing marketwithout derailing it," said Christian Schulz, senior economistat German bank Berenberg.
($1 = 0.5889 British Pounds) (Writing by David Milliken, additional reporting by MattScuffham, Andy Bruce and UK companies team; Editing by CatherineEvans)
