Some industry executives said they were concerned that leaving the "Help to Buy" scheme in place until the end of the decade could create an unhealthy dependency on government aid.

Chancellor George Osborne said on Sunday the government would extend a programme of providing equity loans to buyers of newly built homes costing up to 600,000 pounds by four years until 2020.

Coming in the run-up to the government's annual budget on Wednesday, the announcement illustrates how the debate over Britain's housing shortage has crept to the top of the political agenda, with elections just over a year away.

James Pargeter, head of residential at Deloitte Real Estate, said he was surprised by the length of the extension, saying many in the industry had thought that it might be halted early or tapered off.

"I guess things get a bit skewed when there's an election," he said.

Housebuilding stocks rose strongly on Monday, led by Persimmon and Barratt Developments whose shares climbed 7 percent and 5.4 percent respectively, adding to gains of 40 percent over the past year for the sector.

Shares in the two together with Taylor Wimpey, Berkeley Group Holdings and Bellway added about 930 million pounds in value on Monday, based on Reuters' calculations.

Stewart Baseley, executive chairman of the Home Builders Federation, called on Britain's opposition Labour party to give its backing to the scheme ahead of the May 2015 elections.

"We hope that other parties will be able to ensure that a political consensus to continue the scheme is in place before the election."

The opposition Labour party, which has pledged to get 200,000 homes built a year by 2020, said Britain was experiencing the lowest levels of house building in peace time since the 1920s and that an alternative, "Help to Build" policy was needed.

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The government launched the two-part Help to Buy scheme in April last year in a bid to free up the mortgage market and spur housebuilding, a move that it hoped would help ease Britain's acute housing shortage.

Economists say Britain needs 250,000 new homes per year to keep pace with population growth. Developers built 108,000 homes in 2013, data from property consultancy Savills showed.

Apart from boosting sales rates and profits at housebuilders Barratt and Taylor Wimpey, the scheme has been credited for spurring construction. Construction started on more new homes in England last year than at any point since 2007, data showed last month.

The industry has previously called for more clarity on how the scheme would end.

Knight Frank research analyst Grainne Gilmore said the extension would give more confidence to firms considering big projects, typically each involving 500-1,000 units.

"They take ages to get from field to planning to then building the schemes out. Having that longer time period will be welcomed by the housebuilders," she said.

Almost 15,000 equity loans have been handed out to aspiring house buyers across England since April, Knight Frank data showed. The scheme accounted for 1.8 percent of total transactions across England from April to the end of January.

Osborne did not announce any changes to the second, more controversial mortgage guarantee part of the scheme.

Some industry observers are worried about the implications of long-term state help.

Pete Redfern, chief executive of housebuilder Taylor Wimpey, had previously called for a clear exit plan for Help to Buy, saying that no industry should depend on such support measures.

Roger Humber, strategic policy adviser to lobby group House Builders Association, said he was increasingly worried about dependency on Help to Buy. "They may be perfectly happy now but will they be happy if you get a change of government, a much more interventionist government?"

"An industry cannot prosper if it's built on government guarantees," he said. ($1 = 0.6014 British Pounds)

(Editing by William Schomberg)

By Brenda Goh