UK offers extra help for home-buyers as transactions pick up

* UK's Osborne gives details of scheme to aid home-buyers

* Critics say scheme will lift prices more than construction

* Commercial fee structure still being negotiated

* Industry reports highest mortgage approvals since Jan 2012

By David Milliken and Christina Fincher

LONDON, July 23 (Reuters) - British finance minister GeorgeOsborne gave details on Tuesday of a scheme to help riskierborrowers buy their first home, courting controversy at a timewhen Britain's housing market is already gathering pace.

The Help-to-Buy scheme, unveiled by the government in March,will enable Britons to buy a house with as little as a 5 percentdeposit - a lending practice common before the financial crisisbut one that most banks have avoided since.

Osborne says the scheme will boost construction, noting thathouse purchases are well below pre-crisis levels.

But critics argue a mini-boom in house prices is alreadyunderway due to an earlier government scheme to boost mortgagelending, and data from the British Bankers' Association onTuesday showed the most mortgage approvals since January 2012.

"There is serious concern that the Help-to-Buy mortgageguarantee scheme could eventually fuel a housing price bubble,"said Howard Archer, economist at IHS Global Insight.

"While we suspect that this is unlikely to occur in the nearterm at least given the current pressure on households, it isclearly something that policymakers will need to keep a veryclose eye on," he added.

The first phase of the scheme, which offers buyers ofnew-build properties an interest-free five-year loan for 20percent of the property's value, kicked off in April.

But the more important second phase, which offers 12 billionpounds ($18.4 billion) of guarantees to back mortgages to buyerswho lack large deposits, does not come into force until January.

"The mortgage guarantee will support an increase in highloan-to-value mortgages for people who can't afford largedeposits and it will also boost house building," Osborne said.

Osborne added that the lack of mortgages available to buyerswith only a 5 percent deposit represented a market failure, andthat such borrowers would keep up their loan repayments.

The Council of Mortgage Lenders - which represents mutuallyowned building societies as well as banks - said it welcomed thedetailed guidelines Osborne had just given the industry.

"The mortgage market is open for business, and it is clearthat government support has helped to create more favourablemarket conditions for home-buyers," said CML director-generalPaul Smee.

Housebuilders such as Barratt Developments andTaylor Wimpey also said they were starting to build morehomes.

SUPPLY CONCERNS

But the International Monetary Fund and the government's ownbudget watchdog, the Office for Budget Responsibility, have bothwarned that prices are likely to be pumped up more than supply,making it harder, not easier, for first-time buyers.

Bank of England policymakers have expressed concern aboutstate intervention in the market and what will happen to priceswhen the mortgage guarantee scheme ends in three years' time.

The government said on Tuesday that borrowers would need tohave a good credit history, provide proof of income and satisfythe affordability criteria recently set out by Britain'sconsumer financial regulator, the Financial Conduct Authority.

The government also said taxpayer guarantees could not beused by wealthy people wanting to purchase second homes, andwere only valid for houses costing up to 600,000 pounds - anattempt to prevent its use for purchases of luxury properties.

Mortgage lenders, it added, would be required to collect adeclaration stating that the borrower had no other property.

Details of the commercial fees charged to lenders have yetto be announced. The government said the fee structure woulddepend on loan-to-value bands and would be finalised followingdiscussion with the banks and building societies.

"It will be set to encourage as many lenders as possible toparticipate in the scheme, while protecting the taxpayer," thefinance ministry said.