Speaking at a BoE press conference, Carney said the central bank had reached its "limit of tolerance" on the housing market. It comes amid growing concerns about a housing bubble in London and the south-east of Britain.
As such, the central bank's Financial Policy Committee said it would cap the number of high loan-to-income mortgages being offered. Lenders will have to limit mortgages with a loan-to-income ratio of 4.5 or more to 15 percent of overall loan books from October 1.
Carney also said affordability tests for new home loans would be tightened. From Thursday, borrowers will have to show they could repay their mortgage even if interest rates rose by 3 percentage points. Previously, it was 1 percentage point.
"(This) will prevent lending getting too far ahead of income growth and they'll prevent a slide into riskier lending and higher indebtedness that could undermine the economic expansion over the medium term," Carney said.
Sterling rose to $1.7026 following the comments, edging closer to last week's 5.5-year high of $1.7064.
Fears of a bubble were further fueled this month, after the Office for National Statistics (ONS) said annual house prices in London were rising by by 18.7 percent. This drove up British house prices, which increased by 9.9 percent in the year to April - up from 8.0 percent the previous month.
"The legacy of high indebtedness and structural imbalances mean there are financial stability risks that if left unchecked could undermine the durability of that expansion," Carney said. "And the biggest risks relate to the housing market."
The Council of Mortgage Lenders (CML)'s Director General Paul Smee said the tightening of mortgage criteria would "clearly ensure resilience to shocks."
He added: "Limiting the level of a lender's lending to no more than 15 percent of new mortgages at 4.5 times income or above is likely to impact the London market more than elsewhere. Nationally, 9 percent of new loans are at 4.5 times income or more, but the figure is 19 percent in London."
Help to Buy
Following the bank's announcement, the U.K. government said that no new loans at or above 4.5 times borrowers' income would be included in the Help to Buy mortgage scheme. Introduced in October, Help to Buy provides mortgage guarantees with the aim of helping first-time buyers get on the housing ladder.
The BoE's moves to limit mortgage lending were welcomed by U.K. Chancellor of the Exchequer. George Osborne, who earlier this month said that any such limits would apply to Help to Buy.
"I fully support this action by the Bank of England's new Financial Policy Committee to use the new powers we have given them," he said in a statement. "It will help protect our hard-won economic security by better insuring us against any risks that might emerge in our housing market."
Interest rates in the U.K. are currently at a record low of 0.5 percent, and analysts are split over when the BoE will introduce its first rate hike.
Earlier this month, Carney said interest rates could rise sooner than expected - sending government bond yields and sterling soaring. Prior to this, most investors were not expecting a rate hike until 2015.
However, Carney struck a more dovish tone on Tuesday when he was quizzed by lawmakers, remaining balanced on the issue of a sooner-than-expected rate rise.