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* BoE to have power to set mortgage LTV and LTI caps
* Osborne says housing market not an immediate threat
* Planning changes announced to promote home-building
* Some banks fear new measures may be too crude (Updates with economist quote, background)
By David Milliken and Ana Nicolaci da Costa
LONDON, June 12 (Reuters) - British finance minister GeorgeOsborne said on Thursday that he would give the Bank of Englandstronger powers to curb mortgage lending and reduce the risksthat the housing market poses to financial stability.
British house prices have risen by 11 percent over the pastyear and are close to pre-crisis levels. The InternationalMonetary Fund urged Britain last week to take steps to cool thehousing market and reduce the risk of a bubble.
Osborne, in comments released before he gives a major speechin London, said the housing market was not an immediate threatto Britain's financial stability but could become one in future.
"I am acting against future risks in the housing market bytoday giving the Bank of England new powers to intervene andcontrol the size of mortgages," he said.
The central bank will in future be able to stop Britonstaking out mortgages that are too big compared with their incomeor the value of their home, rather than just make suggestions tolenders as it does now.
Osborne also announced changes to planning rules that hesaid would allow as many as 200,000 homes to be built on formerindustrial sites in urban areas.
But this may not address the worst housing shortage insoutheast England, where local authorities - many of themConservative-controlled - often oppose new building on opencountryside.
The opposition Labour party has criticised the governmentfor not building enough homes since it came to power in 2010,calling on it to introduce more schemes to help homebuilders.
"The danger of the ... failure to act on housing supply isthat we see a premature rise in interest rates to rein in thehousing market, which ends up hitting millions of families andbusinesses," said Labour's economy spokesman, Ed Balls.
NEW POWERS
The BoE's new powers strengthen the ability of its FinancialPolicy Committee to curb pressures in the housing market,without raising interest rates.
Some economists said the move could signal the kind ofmeasures the FPC might introduce after next week's meeting.
Caps on loan-to-income and loan-to-value ratios, however,are considered politically sensitive. They could hit first-timebuyers, which government schemes have sought to target ahead ofnext year's elections.
"It certainly gives the BoE a bigger range of options tohone in more selectively on the area of the housing market ormortgage market which is causing problems," said Philip Shaw, aneconomist at Investec.
But banking industry sources expressed concern that LTI capswere crude and ignored big differences between borrowers'spending patterns, unlike other, stricter affordability testsintroduced by the Financial Conduct Authority in April.
"There is a difference between having a power and decidingwhether and when to use it," the Council of Mortgage Lenderssaid. "In affordability terms, new FCA rules that took effect atthe end of April already hardwire in responsible lending."
BoE Governor Mark Carney, who is due to speak alongsideOsborne on Thursday, has called the housing market the biggestdomestic risk to Britain's financial stability.
Osborne said the BoE should not hesitate to act if needed,and noted that loan-to-income ratios were at a new high,although loan-to-value ratios were well below their peak.
The move comes even as recent data has painted a more mixedpicture of the housing market. Mortgage approvals have fallenfor three consecutive months, while a survey showed earlierhouse price growth was likely to slow over the next year.
HELP TO BUY
Osborne also defended his Help to Buy scheme, which he beganlast year and which broadens access to high loan-to-valuemortgages, although he said it would not be immune if the BoEdid choose to impose loan-to-value or loan-to-income caps.
But the BoE will not be able to use its new powers quiteyet. They will need to be turned into law, which Osborne said hewould do before the next national election in May 2015.
The FPC also has other tools at its disposal, such asrequiring banks to hold more capital against higher-risk loans.
Earlier on Thursday, business minister Vince Cable said hewas "concerned" about rising house prices. Previous housingbooms showed that mortgage loans of around 3-3.5 times people'sincomes were stable, he said, and he was "appalled" to see somebanks lending as much as five times income.
"This is the key area that Bank of England has got tooperate into and make sure that this boom in house prices,particularly in the south of England, doesn't destabilise thewhole economy," Cable told BBC Radio's Today programme.
Lloyds Banking Group and Royal Bank of Scotland both said recently that for loans over 500,000 pounds($839,500), they will no longer give mortgages of more than fourtimes a borrower's income.
But views differ among policymakers on the importance ofrising house prices as a risk to Britain's financial stability.
BoE policymaker Ben Broadbent, who in July will becomedeputy governor, said on Wednesday the housing market upturnbears little resemblance to the debt-fuelled booms of the past,adding that it was more important to watch leverage than prices. ($1 = 0.5956 British Pounds) (Additional reporting by William James, Steve Slater and AndyBruce; Editing by Larry King)
