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* Scheme designed to help homebuyers with small deposits
* Many lenders hesitant despite lure of capital relief
* Critics view scheme as pre-election gamble
By Christina Fincher
LONDON, Oct 8 (Reuters) - Britain will on Tuesday launch amuch debated programme to help people buy their own homes andset out the small print it hopes will persuade more of thecountry's big banks to take part.
RBS and Lloyds, both of which arepart-owned by the government, have said they will startmarketing state-backed "Help to Buy" mortgages this week.Smaller lenders Virgin Money and Aldermore have also agreed tosign up.
But talks with other big lenders have gone down to the wire.
Banks such as Barclays and HSBC want tosee how much capital they must set aside to cover loans tohomebuyers who may put down deposits of as little as 5 percent.
Prime Minister David Cameron and his finance minister GeorgeOsborne brought forward the launch of the programme to this weekfrom its original start date in January.
They dismiss concerns that the programme will fuel aboom-bust cycle in British housing. They say it will help peoplewho have been frozen out of the property market by the bigdeposits sought by banks which remain wary after the financialcrisis.
Critic says the plan was rushed out to give the government aboost ahead of a 2015 general election, just as formerConservative prime minister Margaret Thatcher reaped thepopularity of a programme to allow people to buy homes theyrented from local authorities in the 1980s.
The opposition Labour party says Help to Buy will not fixthe fundamental problem of low levels of housebuilding.
"Unless George Osborne acts now to build more affordablehomes, as we have urged, then soaring prices risk making it evenharder for first-time buyers to get on the housing ladder," saidLabour lawmaker and finance spokesman Chris Leslie.
How popular the scheme will be will depend largely on howregulators view the state guarantee. The government is preparedto run up a liability of up to 12 billion pounds ($19.30billion) - enough to support 130 billion pounds of new mortgagelending. But take-up could be much lower than that.
The main attraction for lenders will be the ability to offerhigh loan-to-value mortgages without tying up punitive amountsof capital. Most attention on Tuesday will focus on anannouncement from Bank of England regulators, expected around0600 GMT, on how they will require banks to treat the mortgages.
"The key factor will be capital relief," said MatthewPointon, a housing economist at Capital Economics.
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 scheme was first announced in March when Britain'shousing market and its economy looked in need of help. Sincethen, property prices have jumped - particularly in London -leading to fears the scheme could cause a new bubble.
A survey by the Royal Institution of Chartered Surveyorsshowed on Tuesday that British house prices rose at the fastestrate in 11 years in September and sales hit a four-year high.
A cross-party committee in parliament, which has criticisedthe scheme in the past, said it remained concerned. "Mistakescould distort the housing market or carry threats to financialstability," the Treasury Select Committee said on Tuesday.
