HBOS, the UK's biggest mortgage lender, is set to target buyers struggling to get onto the property ladder with home loans worth up to 25 per cent more than the value of the property being purchased.

The mortgage, due to launch early next week, will lend extra cash up to 125 per cent of the cost of the property to help with the initial costs of buying a new home such as stamp duty and furniture.

The additional loan is granted on the assumption that borrowers' property will have risen enough in value by the time they resell to repay the extra cash.

But the move has been criticised for placing vulnerable borrowers such as first-time buyers at the mercy of the housing market as house price growth is cooling. Many could struggle to repay the loan or be forced to stay in their properties for many years waiting for house prices to rise.

Nick Gardner, of Chase De Vere Mortgage Management, the broker, said: "By taking a loan of more than 100 per cent of the property's value, you are effectively plunging yourself straight into negative equity, and therefore need to commit to the property for some time to give house prices enough time to rise and eradicate the debt. But if house prices do not rise, you could be trapped in that property for longer than you would like."

Economic analysts are predicting that the housing market is likely to cool if the Monetary Policy Committee increases the Bank of England base rate this Thursday. A further rate rise is anticipated early next year. A recent report from PriceWaterhouseCoopers, the accounting group, suggested that there is a one in three chance of house prices falling by 2010.

Although home loans worth up to 130 per cent of the property value have been available since 1999, experts are predicting that the decision by HBOS, which has a 21.6 per cent market share, will increase demand for this kind of loan.

Ray Boulger, of John Charcol, said: "One potential problem is that whenever a major lender launches something it creates more demand, which could lead to borrowers who are not suitable for this kind of loan wanting to take one out. Relatively few people are suitable for this kind of deal."

Coverntry Building Society and Northern Rock currently offer loans worth up to 125 per cent, while Mortgage Express will offer 130 per cent.

Borrowers are being urged to consider these deals a last resort, and to try and save up for a deposit.