The NewBuy Guarantee, launched by David Cameron in a blaze of publicity, is "not at all what was envisaged", the head of the Home Builders Federation (HBF) said.
Lenders have not embraced the scheme as was intended, the HBF's executive chairman Stewart Baseley wrote in a letter to home builders, acknowledging this is "incredibly frustrating and annoying".
The Treasury has now been forced to urge UK lenders to back NewBuy after a "far from satisfactory launch", he told the industry, following crisis meetings with the HBF and the Council of Mortgage Lenders (CML), which represents high street lenders.
Officials at the Treasury will make "urgent contact with the lenders at senior level to establish each lender's intentions and to impress upon each the need to implement New Buy as a matter of priority", he said.
The Government hopes NewBuy will boost the housing market through 95pc loan-to-value mortgages of up to £500,000 on new build properties, guaranteed by the builder and the state, and create up to 50,000 jobs. The HBF, which developed the scheme, long in the works, with the CML, heralded its official launch on March 12 as a "vital kick-start" for builders. However, there have been worries that lenders, with less benefit to gain, would prove reluctant to embrace it.
The letter from the HBF stokes these concerns and highlights that, in particular, smaller builders are being shut out.
The HBF said that after the initial launch with seven major builders on board, more were expected to "quickly" join the scheme through the "cells", or bundles, of NewBuy mortgages offered by the lenders.
To this end, it supplied the CML with the names of the 130 builders who had flagged their interest. "However," the letter said, "it has become increasingly clear over the past week or so that very few home builders have heard from any of the lenders to date".
Lenders are still deliberating about the rules into entry into the "cells" through which smaller builders can access the scheme and only one is close to launching this type of cell. RBS, Nationwide and Barclays, who announced New Buy products when the scheme launched, are "clearly waiting" for Lloyds to join in April, given its key position in the market, the HBF said.
Mr Baseley told the Telegraph that he was confident the scheme would succeed. "What we have at the moment is a bunch of teething problems," he said.
However, shadow housing minister Jack Dromey said the letter exposed the scheme as a sham. "People desperately trying to get on the housing ladder will feel deceived by George Osborne and [Housing Minister] Grant Shapps."
A CML spokesman said: "The CML and lenders are working with the HBF, builders and the Government to roll it out more widely."
The Treasury confirmed it was aware of the letter and said that officials speak to lenders on an ongoing basis.
A spokesman for the Department for Communities and Local Government said: ""We are all working together to quickly expand the NewBuy Guarantee, which opened for business to buyers only three weeks ago.
"There is real appetite from everyone to make this innovative and ambitious scheme a success, with lenders working as quickly as possible, and more than 130 builders expressing an interest in taking part. We remain committed to ensuring that all interested builders get selling through the scheme as soon as possible."