The Bank of England could get new advisory powers to intervene in Britain's Help to Buy scheme, aimed at freeing up mortgage lending, if there are signs it is creating a housing bubble.
Critics fear the scheme is stoking an unsustainable housing boom, and the move by U.K. finance minister George Minister is seen as an acknowledgement that Help to Buy might have to be pared back if prices rise rapidly in London and the south-east of England.
Under the proposals the BoE's Financial Policy Committee (FPC) will conduct an annual review of the housing sector every September starting next year, after Osborne had originally said the Bank would look at the scheme at the end of its lifespan in January 2017.
The central bank would also be able to recommend a cap on properties eligible for the mortgage plan, currently set at £600,000 ($966,600), to reduce its availability in London where house prices are 8 percent above their 2007 peak.
The FPC could also ask the Treasury to increase the fees it charges lenders for the mortgage guarantees, pushing up the price of loans.
"The FPC's assessment this week - in line with that of the Chancellor and the Governor - is that recent developments in the housing market represent a broadening recovery from low levels of activity, but that we must remain vigilant as that recovery progresses," a Treasury spokesperson said.
Help to Buy assists buyers with a 5 percent deposit on properties worth up to £600,000. The government provides the buyer with a 20 percent loan.
Osborne's proposals come at a time of growing backlash against the government's flagship housing policy, introduced earlier this year to help first time buyers get on the property ladder.
U.K. house prices increased by 0.9 percent in September from August and were 5 percent higher year-on-year, according to new figures released today by Nationwide, pushing the average house price in Britain to £172,127.
(Read more: Bank of England 'vigilant' on UK house prices)
But the housing recovery remains uneven as the gap between house prices in the north and the south of England reached a new high in the third quarter, rising above £100,000 for the first time.
"There are also signs that the pickup is becoming increasingly broad-based. For the first time since 2007, all 13 U.K. regions experienced annual house price growth in the third quarter of 2013, said Robert Gardner, Nationwide's chief economist in a statement.
"However, the southern regions of England continued to see the strongest rates of growth – especially London, where the annual rate of growth reached double digits in the three months to September."
—By CNBC's Arjun Kharpal: Follow him on Twitter