* Central bank seeking legal powers to tame home lending
* Legislation hitting obstacles in parliament
* New flat prices in Prague up a fifth in past year
* Central bank has already recommended banks set loan limits
* Without law, central bank may need to use other tools
By Robert Muller
PRAGUE, June 12 (Reuters) - Czech lawmakers eyeing an October election could water down or reject a law that would give the central bank more powers to curb mortgage lending, potentially forcing it to find other tools to cool the hot housing market.
Prices on new flats in Prague have jumped almost 20 percent in the past year and Czech house price growth is among the fastest in the European Union, pushed up by limited supply and low interest rates.
Economists have yet to say the market is in a bubble, but the central bank is seeking to expand its powers to allow it to set limits on how much banks can lend to home buyers rather than just making recommendations as at present.
The government launched a bill in January that would allow the bank to cap loans according to debt-to-income (DTI), debt-servicing-to-income (DSTI) and loan-to-value (LTV) ratios.
Some lawmakers fear that might leave borrowers such as young families shut out of the housing market, however, and have added amendments limiting the law's scope.
A final vote could come later this month. If the law fails it is likely to be delayed until after the October election.
That would leave the central bank looking for other ways to tame house prices, such as reverting to individual bank-by-bank capital requirements or a countercyclical capital buffer set for all banks, currently at 0.5 percent.
"If it does not pass, the (central) bank will use other instruments, like ordering banks to increase their reserves, and that would affect all loans," Budget Committee deputy chairman Jaroslav Klaska, whose Christian Democrats are part of the governing coalition, told Reuters.
The central bank is due to release its annual financial stability report on Tuesday.
Board member Vojtech Benda told a Reuters Summit in May that property prices were over-valued by 10 percent on average. The bank needed the new tools, he said, but not necessarily to use immediately.
Since April, the bank has recommended that mortgages should not exceed 90 percent of property values (LTV) and that no more than 15 percent of customers should be given loans worth more than 80 percent of a property's value.
Stricter guidelines have tamed lending somewhat but housing prices continue rising, especially in Prague.
"We already have cases of people who last year would go through (the mortgage process) without a problem but now there is no chance," said Jiri Rajek, business development consultant with RE/MAX, one of the leading real estate companies.
Additional reporting by Jason Hovet; Editing by Catherine Evans