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* Scheme designed to help homebuyers with small deposits
* Critics worry scheme could fuel new property bubble
* Survey shows house prices rising at fastest in 11 years
* Lenders to pay commercial fee but will get capital relief
By Christina Fincher and Huw Jones
LONDON, Oct 8 (Reuters) - Britain kicked off a flagshipscheme on Tuesday to help people get on the property ladder,defying critics who believe the state-backed mortgage guaranteescould fuel another housing bubble as the country's economy picksup speed.
Hours before the government launched "Help to Buy," a surveysuggested British house prices were rising at their fastest pacein 11 years. Also on Tuesday, the International Monetary Fundsharply raised its forecasts for economic growth in Britain.
RBS and Lloyds, two banks in which thegovernment retains big stakes after bailing them out during thefinancial crisis, will start marketing state-backed mortgagesthis week. HSBC, Europe's biggest bank, announced itwould join the scheme later this year.
Smaller lenders Virgin Money and Aldermore have also agreedto participate. But Barclays and the British unit ofSpain's Santander were still considering whether tojoin the programme which allows homebuyers to put down a depositof as little as 5 percent.
In a sign of the breadth of concern, a cross-party committeeof lawmakers warned the scheme risked raising prices rather thansupply. "Mistakes could distort the housing market or carrythreats to financial stability," the head of parliament'sTreasury Committee, Andrew Tyrie, said.
When the programme was announced in March, Britain's housingmarket and its economy both looked in need of serious help. Nowthings look very different.
House prices nationally are rising at more than 6 percent ayear, according to mortgage lender Halifax, and parts of thecapital are seeing gains in excess of 10 percent.
The government and Bank of England say there is no obviousrisk of overheating and note that housing transactions remainwell below long-term norms.
More broadly, Britain's economy is also recovering morequickly than expected. A survey on Tuesday showed British firmsrecorded the best growth in domestic trade for at least sixyears in the third quarter.
The British Chambers of Commerce said the results of itsquarterly economic survey suggested economic growth sped up toaround 0.9-1.0 percent in the third quarter.
The IMF, which earlier this year urged the government tospeed up infrastructure spending to get Britain's weak economygrowing, said it was now expecting gross domestic product toexpand by 1.4 and 1.9 percent in 2013 and 2014, respectively.
That was up from its previous forecasts of 0.9 and 1.5percent, made as recently as July, and represented the biggestupgrade of forecasts by the Fund for advanced economies in a newreport issued on Tuesday.
EARLY START
Prime Minister David Cameron and his finance minister,George Osborne, trumpeted the mortgage guarantee scheme at theConservative Party conference last week and announced it wouldstart three months early.
Their opponents say the plan was rushed out to give thegovernment a boost ahead of a 2015 general election, similar tothe way former Conservative prime minister Margaret Thatcherreaped the popularity of a programme to allow people to buyhomes they rented from local authorities in the 1980s.
Under the scheme, the government will offer to guarantee upto 15 percent of mortgages, helping people who in recent yearshave been unable to get on the property ladder because they lackthe high deposits lenders now require.
Now, a deposit of 5 percent, could suffice on any propertyworth up to 600,000 pounds ($965,000).
Participating banks won't have to set aside capital to coverthe state-backed portion of mortgages they offer as part of theprogramme, the Bank of England said.
In exchange for the guarantee, the government will charge afee of up to 0.9 percent of the loan's value. This is designedto cover any losses to the taxpayer, if borrowers default, andto comply with European Union state aid rules.
The opposition Labour party said the scheme would not fixthe fundamental problem of low levels of housebuilding andrising prices might make it harder for first-time buyers to geton the housing ladder.
The number two at Britain's Treasury stressed thegovernment's case for the plan.
"I don't think our housing market should be shut for peoplewho aren't lucky enough to have wealthy parents who can paytheir deposit, or have accumulated all the assets to pay a 25 or30 percent deposit," Danny Alexander, chief secretary to theTreasury, told BBC radio.
