Fears have been raised over the Prime Minister’s decision to hurry forward the second phase of the controversial Help to Buy scheme with warnings that it would backfire and prevent people getting on the property ladder whilst threatening to create a new housing bubble.

Amid rapidly mounting signs of rising house prices now across the UK David Cameron defended his announcement which will see the state-backed mortgage scheme introduced this week - three months earlier than planned.

“I am not going to stand back while people's aspirations to get on the housing ladder, to own their own flat, to own their own home, are being trashed,” Mr Cameron said, adding that he had the support of the three big lenders NatWest, RBS and Halifax.

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“This is not something totally new in our country - for most of our lifetimes it's been possible for people to go out and buy a flat with a 10 per cent deposit. If we don't do this, it will only be people with rich parents who can help them with the deposit who can get on the housing ladder. That is not fair, it is not right, it is not the sort of country I want to live in,” he added.

The scheme, which comes in the wake of Labour’s sudden poll boost following its pledge to cap domestic fuel bills, prompted scepticism and surprise in the City. Under the plan banks and building societies will be encouraged to lend up to £130bn to potential buyers seeking 95 per cent loans.

Some £12bn of taxpayers’ money has been earmarked to insure deposits of up to 15 per cent on properties worth £600,000.

But it has raised anxieties – including from Business Secretary Vince Cable and the former Governor of the Bank of England Sir Mervyn King – that the Government could be exposed to billions of pounds of future housing debt whilst inflating the property market.

Duncan Scott, director of PricedOut which campaigns for more affordable house prices for first time buyers, said the policy would make the situation even worse. The average house now costs £164,654 – an increase of 1.3 per cent since last year.

“Guaranteeing mortgages can only cause more money to be lent into the housing market, meaning house prices pushed even further out of reach of first-time buyers. The sheer cost of housing in the UK is having disastrous consequences for the economy and for society, but the government is simply perpetuating this unsustainable situation,” he said.

The Institute of Directors reiterated its concern over boosting demand rather than prioritising building more houses.

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“Subsidising mortgages is no substitute for liberalising the planning system. Politicians can get hooked on underwriting mortgages, and the lack of an exit strategy is particularly worrying. The market needs help to supply, not help to buy,” it said.

Angel Mas, president of mortgage insurance Europe at mortgage insurance giant Genworth, said it was “very surprising” the scheme was being launched when it lacked “clarity” on key points.

“To protect the taxpayer from a house price bubble, it will also be essential for there to be adequate and commercial pricing of the guarantee to protect the taxpayer from risk, for there to be vigilant monitoring of the scheme to ensure lending remains prudent, and for there to be an exit strategy for when the scheme comes to an end,” he said.

Adam Marshall, of the British Chambers of Commerce, said: “With all the concern expressed about Help to Buy - rushing into it seems less than responsible on part of government.”

Labour also condemned the policy calling for more house building and an urgent review of the details of the scheme before the first mortgages were approved.

Last week Chancellor George Osborne asked the Bank’s Financial Policy Committee to monitor the loans annually rather than after the first three years of operation following criticism from the International Monetary Fund and the Organisation of Economic Co-operation and Development which said it could fuel inflation.

The first part of the scheme was launched earlier this year helping first time buyers purchase new homes. It resulted in 4,000 reservations in the first two months of operation, according to the Home Builders Federation.