The Central Bank has raised questions about the shared equity scheme proposed by Minister for Housing Darragh O'Brien to help first-time home buyers.
In a letter to the Oireachtas Housing Committee, the bank said the initiative could result in "upward pressure on house prices" if demand for homes increases.
The letter by the bank's Director of Financial Stability, Vasileios Madouros, comes after reservations about the scheme have been expressed by the Department of Public Expenditure & Reform and the Economic & Social Research Institute.
Under the plan, the State would take a 30% stake in properties to help first-time buyers purchase a home.
In the letter, the Central Bank said that Minister O'Brien's scheme is described as providing equity support to households but "there is little detail around the contractual obligations on those that might receive this financing".
It also raises the possibility that the design of the scheme could be in conflict with the Central Bank's rules on mortgage lending, which set strict limits on how much banks can lend to borrowers.
The Central Bank said: "This arises as the effect of the scheme is to effectively enable a higher purchase price through the provision of more external finance to the borrower."
However, the letter said that the proposed scheme in isolation "is likely to have a limited impact on the ultimate supply-side problem in the Irish housing market".
Sinn Féin's housing spokesman Eoin Ó Broin said the letter "highlights the risks to borrowers arising from potentially unsustainable debt, interest charges and unregulated lending".
He added: "In light of this, it would be irresponsible for Government to proceed with the scheme at this point."
In a statement, a spokesperson for Minister O'Brien said the Central Bank had focused "solely on the shared equity scheme and not on other aspects of the Affordable Housing Bill".
She added the Bill included "the first scheme of direct state built affordable homes in over a decade" and the "first ever national cost rental scheme".
She said "€75m has been put aside in Budget 2021 for the shared equity scheme - this represents approximately 2% of the €3.3.bn housing budget".
The details of the scheme are being worked on with stakeholders including the Central Bank, she added.