Osborne seems to have missed a more general point: the credit cycle is partly an artificial problem. It is precisely because the government (actually the Monetary Policy Committee) frequently changes interest rates that we get credit booms and busts. The mortgages that are in trouble in the UK got into trouble because of six consecutive interest rate rises. And the rush for credit was caused by so many interest rate reductions in the years beforehand. If interest rates were generally constant, it would take a lot of the speculation out of the property market, and house prices would have a chance to settle at a level and growth rate that is determined much more by supply and demand. Constant interest rates would remove the "fear of missing the boat" that when interest rates are lowered and house prices skyrocket, a house that is nearly affordable today will be far too expensive tomorrow. And they'd remove the terror of negative equity from house price crashes when rates rise. It is those sentiments that drive the booms and crashes in the property market.
It also strikes me that for controlling retail demand (in order to control retail inflation), interest rates are a very inefficient and inequitable lever to pull. They disproportionately affect the people with the biggest mortgage-to-salary ratios (ie, first time buyers), and have fairly little effect on almost everybody else. Renters don't see rent rises until six months to a year later, and those who have had mortgages for a long time have a much bigger cushion because inflation and career growth have raised their salaries compared to their repayments.
Surely rather than having a massive effect on just a few people, the lever to pull to control retail demand would be one that effects every consumer, not just homeowners with large mortgages? Perhaps sales tax (VAT) or by varying part of income tax (which could be reflected in the PAYE system very quickly allowing short-term changes)?
Just a thought