FRANKFURT- Germany and Austria should curb a boom in house prices by setting caps on mortgages and forcing banks to build up more capital, the European Union's financial stability watchdog said on Friday.

The European Systemic Risk Board's recommendations, published on Friday but dating back to early December, were likely to speed up action by authorities in the two countries.

"Austria and Germany...had already received ESRB warnings in 2016 and 2019, respectively (but their) vulnerabilities have not been addressed sufficiently," the ESRB said.

Specifically, the ESRB wants Berlin and Vienna to impose limits on how much property buyers can borrow in relation to the purchase price and to their income.

The watchdog also recommends that authorities order banks to build capital cushions to absorb possible losses via a countercyclical buffer and a sectoral systemic risk buffer for residential loans.

Since the recommendation was issued on Dec. 2, Germany's financial watchdog BaFin introduced a countercyclical buffer of 0.75% and said a supplemental 2% cushion would be set for residential mortgages. 

Its Austrian counterpart said on Friday it wanted to tighten its own curbs after it found that more than half of new mortgages did not comply with its standards, which are not binding.

These include a down payment of at least 20%, servicing costs not exceeding 40% of a household's income and a maximum maturity of 30 years.

"We do not have a property bubble that is about to burst," the deputy governor of Austria's central bank Gottfried Haber told reporters.

"But we have high price growth, we have high lending growth and therefore systemic risks that have increased in recent months and which we must therefore address proactively."

The ESRB's recommendation comes as the European Central Bank winds down its massive bond purchases and is widely expected to increase its interest rate after years of aggressive stimulus.

Ultra-low borrowing costs have helped fuel runaway property prices in richer euro zone countries and particularly in large cities.

(Reporting By Francesco Canepa in Frankfurt; Additional reporting by Francois Murphy in Vienna; Editing by Alex Richardson) ((francesco.canepa@thomsonreuters.com; 004906975651247; Reuters Messaging: francesco.canepa.thomsonreuters.com@reuters.net))