A NEW pensions tax break is set to trigger a multibillion-pound flood of cash into second-home buying that could keep houses out of the reach of struggling first-time and rural buyers.

Higher-rate taxpayers could sink as much as £6 billion a year into buying holiday and buy-to-let property under Gordon Brown’s plan to let people use their personal pension funds to buy houses, Savills, the leading estate agency, forecast.

Amid fears that the regime could lead to a fresh financial mis-selling scandal, as unscrupulous property groups give tax breaks heavy promotion, the first signs of Treasury unease will emerge today with consultation on whether the schemes need to be policed by the Financial Services Authority.

Under the controversial rule changes for self-invested personal pensions (Sipps), due next April, high-earners will be able to cash in on an effective 40 per cent “discount” on second homes. Higher-rate taxpayers will be able to set the cost of these properties against their tax bills.

Sipps are do-it-yourself pension pots where taxpayers make their own investment decisions. Hundreds of thousands of well-off people are expected to exploit the new tax perk. In future, a higher-rate taxpayer buying a £100,000 property through the scheme would receive a £23,000 refund personally and a further £28,000 refund into the Sipp, making a total rebate of £51,000.

But there were warnings yesterday that the wave of capital which could be unleashed as the wealthy move to exploit the scheme could destabilise the housing market.

Financial experts and political critics said that Sipps could put vulnerable investors’ money at risk, as well as damaging the public finances through the heavy cost to the Treasury.

Ministers could yet opt to allow even more companies, including estate agents and property developers, to sell the tax-privileged schemes. But anxieties are growing that some investment companies will encourage savers to gamble hard-earned pension pots on a volatile housing market. If billions of extra cash flowing into the market pushes prices up, or props up excessive prices, first-time buyers and rural workers could be further squeezed out of buying their own homes.

Lord Oakeshott of Seagrove Bay, a Liberal Democrat Trea-sury spokesman and leading critic of Sipps, said: “Letting people put individual residential properties into their pension funds will end in tears for the taxman, tears for the first-time buyer, and tears for the pension investor.”

He added that the Treasury needed to reconsider the plans. He said the scheme could cost the Chancellor billions of pounds in lost revenue if the appetite of higher-rate taxpayers for the scheme proved far stronger than Mr Brown expects, as some financial experts have claimed they will.

Another key worry highlighted by the Lib Dem peer is that with the well-off snapping up cheaper homes, prices at the lower end of the housing market will be pushed upwards, excluding more first-time buyers.

Lord Oakeshott said: “Since demand is likely to be focused on buy-to-let properties it will create unfair competition for first-time buyers at the cheapest end of the market.”

James Carrick, an economist at ABN Amro, the City investment bank, said that the likely gains from Sipps in making it easier for the wealthy to buy property sat oddly with the Chancellor’s declared aim of making it easier for the less well-off to enter the property market. “What I do not think he wants to see is a few rich people in London buying all of the affordable homes in the country,” he said.

Oliver Letwin, the Shadow Environment Secretary, cautioned that the new rules would exacerbate problems already encountered by rural residents who found it tough to get on to the housing ladder.

The Treasury played down the impact of the scheme, saying that there was no financial incentive for people with Sipps to start investing in property rather than other assets.

The warnings over Sipps came as further falls in house prices shown by the latest survey of conditions from the Nationwide Building Society, the third biggest mortgage lender, emphasised the risky climate in the property market.

Average house prices across the country fell in September by 0.2 per cent, the Nationwide reported. The price falls left annual house price inflation at just 1.8 per cent, the lowest since May 1996.

But hopes that the market is stabilising were boosted by Bank of England figures indicating that lenders agreed the largest number of new home loans for 14 months during August.