British house prices have risen by 11 percent over the last year, benefiting house builders but leading to concerns that a bubble could develop.

Finance minister George Osborne said late on Thursday he would now give the Bank of England stronger powers to curb mortgage lending, while the Bank's Governor Mark Carney also noted that interest rates could rise sooner than expected, in his strongest warning yet.

Shares in the country's biggest housebuilders including Barratt Developments (>> Barratt Developments Plc) and Persimmon (>> Persimmon plc), fell over 4 percent, dragging down the FTSE 100 blue-chip index <.FTSE>, while Bovis Homes Group (>> Bovis Homes Group plc), Taylor Wimpey (>> Taylor Wimpey plc), Bellway (>> Bellway plc) and Berkeley Group (>> Berkeley Group Holdings PLC), were down between 3 and 4 percent.

Land Securities (>> Land Securities Group plc) and British Land (>> British Land Company PLC), the country's two largest listed property developers, were also hit, with shares in both groups down over 3 percent.

"The authorities are gearing up to rein in the housing market," Berenberg economist Robert Wood said. "Action is likely to be gradual and gentle, but make no mistake, it is on the way.

"So the change in powers is less significant than the message it gives."

Osborne said the housing market was not an immediate threat to Britain's financial stability but could become one in future.

"I want to make sure that the Bank of England has all the weapons it needs to guard against risks in the housing market," he said in a speech to London's financial community.

The central bank will in future be able to stop Britons taking out mortgages that are too big compared with their income or the value of their home, rather than just make suggestions to lenders as it does now.

Osborne also announced changes to planning rules that he said would allow as many as 200,000 homes to be built on former industrial sites in urban areas.

(Reporting by Kate Holton; Editing by Paul Sandle)