FEAR OF NEW BUBBLE..??

The Bank of England said Thursday it plans to cut its support for mortgage lending in the U.K. and nudge banks towards lending more to small businesses.

The move is a response to mounting concern that a rapid pickup in housing market activity in Britain could ultimately turn sour, hurting banks and borrowers, as well as longstanding worries that small firms are being starved of credit, hindering economic recovery.

It is also an example of the increasing willingness of central banks across the globe to deploy tailored policies to steer their economies, rather than relying solely on official interest rates.

The BOE said in its twice-yearly financial stability report that although there is little evidence that quickening activity in Britain's housing market poses an immediate threat to financial stability, "risks may grow if stronger activity is accompanied by further substantial and rapid increases in house prices and a further buildup in household indebtedness."

The central bank said property has played "a central role" in many previous economic and financial crises. In the U.K., real estate accounts for 70% of non-financial assets.

House prices in the U.K. have risen rapidly in recent months, prompting fears over the emergence of a new bubble in prices. A government mortgage-support program for would-be homebuyers called Help-to-Buy has driven an increase in mortgage lending, including a rise in the number of riskier loans on offer that require only a small downpayment.

The BOE said that in response to the pickup in housing-market activity and an ongoing dearth in small-business lending it has decided to overhaul its flagship Funding-for-Lending Scheme, or FLS, which offers banks cheap cash provided they use it to dish out loans to households and businesses.

Banks drawing on the FLS will from January no longer benefit from reduced capital requirements on new mortgage loans, the BOE said. Capital relief will continue for small business loans, however. Banks engaged in small business lending will also pay a smaller flat-rate fee of just 0.25% to use the FLS and will be able to draw more cash from the facility, the BOE added.

The changes were agreed with Chancellor of the Exchequer George Osborne.

"Now the housing market is starting to pick up, it is right that we focus the scheme's firepower on small businesses," Mr. Osborne said. BOE Gov. Mark Carney said extra support for mortgage lending is "no longer needed."