(Adds detail, response from mortgage lenders)
By David Milliken
LONDON, Dec 17 (Reuters) - Britain took another step towards tightening the rules for its booming property rental sector on Thursday when the government set out plans to allow the Bank of England (BoE) to curb lending to landlords.
The BoE asked last year for formal powers to regulate "buy-to-let" mortgages, which would be similar to the way it controls lending to ordinary homeowners. The government initially declined to allow the change.
But Conservative finance minister George Osborne is moving to boost home ownership by households and recently reduced tax breaks for small buy-to-let landlords. On Thursday he formally opened a consultation into giving the BoE new powers.
"This consultation aims to gather views on how the operation of the UK buy-to-let mortgage market may carry risks to financial stability ... (and) on the specific tools in relation to which the (BoE) has recommended it be granted powers," the finance ministry said.
The BoE earlier this month said buy-to-let lending was growing rapidly and may be more vulnerable than standard mortgage lending when interest rates rise.
But it stopped short of urging banks to cap mortgages, unlike in 2014 when it recommended they curb residential lending at high loan-to-income multiples, a change which contributed to a slowing in house price growth last year.
The consultation launched on Thursday, which will run until March 11, proposes the BoE should be able to cap the size of mortgages relative to a property's value, and set the margin by which expected rents must exceed interest payments.
The government said the consultation aimed to ensure new regulation "is proportionate, does not place excessive costs on business, and does not unduly restrict business activity".
Lenders said the BoE should not intervene for now.
"We urge policymakers to be mindful of the risk of unintended consequences .... alongside their focus on ensuring that the buy-to-let market does not pose a threat to financial stability," Paul Smee, director-general of the Council of Mortgage Lenders, said.
Reporting by David Milliken; Editing by Andy Bruce and David Holmes