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* Loans limited to 4 times income on 500,000 stg+ properties
* Bank estimates move will affect 8 pct of lending in London
* Lloyds says still supports UK's mortgage guarantee scheme (Adds comments from mortgages director)
By Matt Scuffham
LONDON, May 20 (Reuters) - Lloyds Banking Group,Britain's biggest retail bank, has tightened its lendingcriteria to help tackle rising prices in London's housingmarket.
The bank, which is 25 percent owned by the government, saidon Tuesday it would limit mortgages to a maximum of four times aborrower's annual earnings when it is lending more than 500,000pounds ($842,400) on a property.
House prices are soaring in London as the economic recoveryand record-low interest rates tempt purchasers back into one ofthe world's most expensive property markets. London house priceswere almost 30 percent above the peak seen in 2007, Lloyds said.
Lloyds said the new policy, which will affect about 8percent of its lending in London, was a "targeted response to anissue largely in the upper tiers of the London housing market".
"This is largely driven by issues of supply which areparticularly acute in London and this is having an impact onincome multiples which are failing to keep pace with assetgrowth," said Stephen Noakes, group director of mortgages.
Noakes said Lloyds still supported the government's Help toBuy mortgage-guarantee scheme, which helps people buy propertywith deposits as low as 5 percent of the property price.
Bank of England Governor Mark Carney warned on Sunday thatthe housing market posed the biggest domestic risk to thefinancial stability of Britain's $2.5 trillion economy.
"This is a commercial decision for the firm," a spokeswomanfor the BoE said on Tuesday.
($1 = 0.5935 British Pounds) (Reporting by Matt Scuffham; Editing by Steve Slater)
