Britain launches home loan guarantee plan as property prices climb

LONDON (REUTERS) - Britain launched a flagship scheme on Tuesday to help people get on the property ladder, defying critics who believe the state-backed mortgage programme could fuel another housing bubble.

"Help to Buy" was launched hours after a survey suggested British house prices were rising at their fastest pace in 11 years.

RBS and Lloyds, two banks in which the government retains big stakes after bailing them out during the financial crisis, will start marketing state-backed mortgages this week. HSBC, Europe's biggest bank, announced it would join the scheme later this year.

Smaller lenders Virgin Money and Aldermore have also agreed to participate. But Barclays and the British unit of Spain's Santander were still considering whether to join the programme which allows homebuyers to put down a deposit of as little as 5 percent.

In a sign of the breadth of concern, a cross-party committee of lawmakers warned the scheme risked raising prices rather than supply. "Mistakes could distort the housing market or carry threats to financial stability," the head of parliament's Treasury Committee, Andrew Tyrie, said.

When the programme was announced in March, Britain's housing market and its economy both looked in need of serious help. Now things look very different.

House prices nationally are rising at more than 6 percent a year, according to mortgage lender Halifax and parts of the capital are seeing gains in excess of 10 percent.

The government and Bank of England say there is no obvious risk of overheating, pointing to buying/selling and lending activity still well below long-term norms.

More broadly, Britain's economy is also recovering more quickly than expected. A survey on Tuesday showed British firms recorded the best growth in domestic trade for at least six years in the third quarter.

The British Chambers of Commerce said the results of its quarterly economic survey suggested economic growth sped up to around 0.9-1.0 percent in the third quarter.