The Treasury has been urged to rein in the Help to Buy scheme by the European Commission to stop house prices getting out of control.
The commission has called on the Government to respond to rising house prices by increasing the supply of property, raising council tax on expensive properties and adjusting the Help to Buy 2 loan guarantee scheme.
The proposals are outlined in a document which advises member states on how to achieve long-term economic growth.
It says: “The commission recommends that the UK deploy appropriate measures to respond to the rapid increases in property prices in areas that account for a substantial share of economic growth, particularly London, for example by adjusting the Help to Buy 2 scheme, and mitigate risks related to high mortgage indebtedness.”
The commission adds that “action is needed” to further boost property supply, for instance by creating appropriate incentives at a local level.
Chancellor George Osborne has been warned by economists that Help to Buy could lead to a housing bubble.
Figures published by the Treasury last week show a total of 7,313 mortgages were backed by Help to Buy 2 in the six months since it launched in October.