The Bank of England is to get extraordinary new powers to control the size of mortgages in the UK in the likelihood of a property bubble that could threaten the country’s economic recovery.

Chancellor George Osborne announced the new powers during his annual Mansion House speech in London and Bank of England Governor Mark Carney said there could be an interest rate rise as soon as this year.

This comes despite lending and property experts pointing out that the only place where there is the danger of a property price bubble in London but even in the city soaring price growth is softening.

They have also pointed out that in some parts of the UK, most notable the north east and Northern Ireland pries have not yet recovered from the downturn during the recession.

Originally Carney had said that an interest rate rise was unlikely before 2015 and now he says it is imminent, putting up the cost of mortgages for millions of current home owners and raising the cost for potential first time buyers.

‘There’s already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced. It could happen sooner than markets currently expect,’ said Carney.

Osborne said he will push through the new powers before next year’s general election as he believes that the Bank should have a full range of alternatives to higher interest rates as a way of cooling down the housing market.

‘I want to make sure that the Bank of England has all the weapons it needs to guard against risks in the housing market. I want to protect those who own homes, protect those who aspire to own a home, and protect the millions who suffer when boom turns to bust. So I am giving the Bank new powers over mortgages, including over the size of mortgage loans as a share of family incomes or the value of the house,’ he said during his speech.

Until now, the Bank’s new financial policy committee has merely had the power to recommend actions to banks and building societies, but it will now be able to directly limit the size of a mortgage in relation to the value of a home or the size of a potential home buyer’s income.

Neither the Treasury nor the Bank think there is an imminent risk of a property bubble but both are concerned about the potential for the property market to cause havoc once again with an economy.

‘Does the housing market pose an immediate threat to financial stability today? No, it doesn’t. Could it in the future? Yes, it could, especially if we don’t learn the lessons of the past. So we act now to insure ourselves against future problems before they can materialise,’ said Osborne.

The chancellor said that it would be up to the Bank to decide on the precise caps on loan to income and loan to value ratios should they be needed. ‘The Bank of England should not…