The move to extend the Government’s flagship Help to Buy scheme until the end of the decade will be cheered by struggling first-time buyers, but comes amid growing concerns that the initiative is fuelling a damaging housing bubble.

Chancellor George Osborne’s announcement that another £6 billion will be invested in the equity loan scheme to help an estimated 120,000 more households purchase a new-build home follows a flurry of surveys showing a booming property market.

Mortgage lender Halifax reported earlier this month that house prices surged at their strongest annual rate since 2007 in February after rising by 7.9% to £179,872, although it added that average values are still sitting at 10% below their 2007 peak.

It is feared the scheme is pushing house prices further out of some people’s reach by creating strong demand in the market without the supply of properties for sale keeping up.

There are concerns in particular that the second phase of the scheme – the mortgage guarantee offered on new and existing homes worth up to £600,000 – is pushing prices too high in London and the south east.

Bank of England governor Mark Carney said he is watching the housing market closely for signs that a bubble may be emerging and said policymakers stand ready to raise rates if needed to curb rising prices.

The mortgage element of the state-run Funding for Lending scheme offering banks cheap access to finance in order to lend to home buyers was already ended at the beginning of the year to help rein in the burgeoning market.

But there are worries that with the bank base rate likely to remain at the rock-bottom level of 0.5% for at least a year, the property market will continue to race higher.

The equity loan part of the scheme was launched in England last April with the aim of offering credit-worthy buyers with a deposit of at least 5% a helping hand onto the property ladder, as well as increasing the housing supply by being targeted at new-build properties only.

Under this phase, the Government offers buyers of new-build homes an equity loan of up to 20% of the purchase price, in addition to the buyer's own deposit, which is normally required to be at least 5%.

The borrower then takes out a mortgage on the remaining 75% of the property’s value.

The equity loan is interest-free for the first five years and borrowers taking part must pay the Government back after 25 years, or when the mortgage is paid back, for example if the property is later sold.

The scheme has already aided more than 25,000 home reservations.