The Department of Finance warned against proceeding with a Government-backed mortgage scheme for first-time buyers, saying the loans would do nothing to improve the supply of housing.

The Rebuilding Ireland Home Loan was launched earlier this year by Minister for Housing Eoghan Murphy.

Borrowers pay a fixed interest rate of 2% to 2.25% for 25 to 30 years. Income cannot exceed €50,000 for a single person or €75,000 for a couple.

Documents released to RTÉ's Morning Ireland under Freedom of Information, show the Department of Finance and Department of Public Expenditure and Reform recommended that the proposal be rejected, saying that the rationale for the loans was "unclear."

A departmental 'view' written in September of last year said the measure would appear to involve significant risk to the State adding that the loan limits were "quite generous relative to median house prices."

It added: "Even if it were workable this measure would do nothing to increase housing supply at a time when supply not demand is the problem."

Sinn Féin's Housing Spokesperson, Eoin Ó Broin said the documents "confirm the concerns that I and others had on announcement.

"The scheme doesn't deal with the real problem which is the lack of affordable homes, and it also highlights concerns in terms of possible mortgage distress and financial risk to the State."

The two finance departments also said they believed the Rebuilding Ireland Home Loan would be subject to the Central Bank's Loan to Income rules.

The documents show that in a lengthy response the Department of Housing argued that "as the interest rate is to be fixed over the full life of the loan, thereby limiting borrowers exposure to interest rate rises, it is not necessary to apply the Central Bank Loan to Income regulations to the scheme."

The Department of Housing added that loans with repayments in excess of 35% of net income would not be allowed, save in limited, exceptional circumstances.

Two months after initially raising concerns, officials in both the Department of Finance and the Department of Public Expenditure and Reform withdrew their objections to the scheme.

In a statement the Department of Housing confirmed that no changes were made to the proposals other than an agreement to retain the income threshold for joint applicants at €75,000.

"Both the Department of Public Expenditure and Reform and the Department of Finance had a number of concerns primarily relating to the rationale for the proposed Rebuilding Ireland Home Loan. Through bilateral engagement, the Department of Housing satisfied these concerns."

It added that a comprehensive response to the issues raised had been sent to both departments.

However, Mr Ó Broin said it remained unclear why the concerns had been withdrawn.

"The Department of Finance doesn't explain why, if at all, they have changed their mind. That begs the question, was there additional political contact at ministerial level or other that led to the departments, at the end, withdrawing from the conversation without necessarily having their concerns addressed?"

Under the Rebuilding Ireland Home Loan, a person or couple can borrow up to 90% of the value of a new, second-hand or self-build home to a maximum of €320,000 in the Greater Dublin area, Cork and Galway and up to €250,000 in the rest of the country.

However, the documents also show that the Department of Housing was pessimistic about the take-up of the scheme in the capital.

It said that because of rising house prices the loans may be concentrated outside the Greater Dublin Area "at least in the immediate future."

Tánaiste Simon Coveney said the Department of Finance and the Department of Housing were engaged in "back and forth" questioning on the merits of the Rebuilding Ireland Home Loan.

Answering questions from Sinn Féin in the Dáil, Mr Coveney said, "anyone in a Government department would raise robust questions to test the merits (of the scheme) or not.

"It is a success story so far. Last week there were 323 calls. There is a significant interest in Dublin."

Mr Ó Broin said the minister "needed to give the impression there was something he was doing."

"The Minister, possibly with the advice of the Strategic Communications Unit, cobbled together this initiative," he added.