* Scheme designed to help homebuyers with small deposits
* Critics worry scheme could fuel new property bubble
* Lenders to pay commercial fee but will get capital relief
By Christina Fincher and Huw Jones
LONDON, Oct 8 (Reuters) - Britain launched a flagshipprogramme to help people buy their own homes on Tuesday,offering banks the chance of providing high loan-to-valuemortgages without having to set aside punitive amounts ofcapital.
The scheme, which allows home-buyers to put down a depositof as little as 5 percent, has raised fears that housing pricesmay be heading for a new boom-bust cycle.
It was launched hours after a survey suggested British houseprices rose at their fastest pace in 11 years last month.
In a sign of the breadth of concern about the plan, across-party committee of lawmakers warned on Tuesday that itrisked raising prices rather than supply.
"Mistakes could distort the housing market or carry threatsto financial stability," the Treasury Select Committee said.
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.
Other banks are considering whether to sign up.
Prime Minister David Cameron and his finance minister GeorgeOsborne brought forward the launch of the mortgage guaranteeprogramme to this week from its original start date in January.
Under the scheme, the government will offer to guarantee upto 15 percent of the mortgage, helping people who in recentyears have been unable to get on the property ladder becausethey lack the high deposits lenders now require.
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.
"The guaranteed portion of the loan would be treated as anexposure to the UK government," the BoE's Prudential RegulationAuthority said in a statement.
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.
Critics believe the plan was rushed out to give thegovernment a boost ahead of a 2015 general election, just asformer Conservative 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.
The number two at Britain's Treasury reiterated thegovernment's defence of the plan, saying it would help peoplewho cannot afford the big downpayments sought by banks which arestill wary after the financial crisis.
"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 told BBC radio.
Lloyds (LLOY)
