The powers will mean that, for the first time in the modern era, the Bank could impose restrictions on the amount banks can lend.
The reforms, to be sketched out in the Chancellor's first Mansion House speech in the City of London, represent a revolution for the City, since in the past banks have always had freedom to decide to whom they can lend.
The Bank and its Governor, Mervyn King, would be able to prevent banks from lending too much, or to over-extended customers, if they judge that this would destabilise the economy.
The precise details of the controls the Bank is to be given will be detailed fully at a later date.
However, they are likely to include restrictions on the loan-to-value ratios offered to customers. For instance, families could be prevented from taking out a mortgage for anything more than 75 per cent of the value of their home.

Surely a mortgage should be based on how much money you earn, not the price of the house?

Surely a mortgage should be based on how much money you earn, not the price of the house?

I agree in principle, but a maximum mortgage of 75% is just stupid. 90 to 95% (including any fees etc) is a more realistic limit.
100% mortgages (and over) should be banned. If you can't afford to save a small deposit, how are you going to afford the repayments? Mortgages are nearly always more expensive than the rent people pay before they buy a house.

Surely a mortgage should be based on how much money you earn, not the price of the house?

Negative equity is not a problem as long as you can keep making repayments. Over the long term house prices continue to increase, and thus property was/is about the best investment you can make.

Add in the fact that it is tax free unlike any other investment.

Unless it's not your primary residence, in which case it will attract capital gains tax when you come to sell it. And that's not to mention stamp duty etc.