The Government broke Treasury rules in order to launch its flagship Help To Buy policy by failing to carry out any of the assessments of alternative schemes, PAC have said.
Committee chair Margaret Hodge criticised the Government for failing to be cautious before handing out £10bn in loans.
This means it has committed to spending up to £10 billion on supporting Help to Buy without establishing whether it represents the most effective way of using taxpayers' money to achieve its objectives.
The department will not carry out a comprehensive evaluation of the scheme until 2015, by which time billions of pounds will already have been spent.
The effect of Help To Buy, where Government equity loans finance up to 20% of the purchase price of homes worth up to £600,000, has varied in different regions and proved most popular in the north, according to MPs.
The Public Accounts Committee said:
- The scheme was also popular in the Midlands and areas undergoing extensive regeneration.
- However, it had less momentum in London and the South East, which has the biggest need for housing.
The Help To Buy scheme has been criticised for failing to provide value for money and creating risk for the taxpayer by an influential group of MPs.
The Government's flagship policy was accused of creating "medium and long-term risk" to taxpayers who are faced with a £10bn loans portfolio, according to the Public Accounts Committee (PAC).
In a report, the committee said this will create a "heavy administrative burden" for decades to come.
The spending watchdog said the scheme was introduced smoothly and quickly last year and helped 13,000 home-buyers within nine months.
But it noted that Eric Pickles's Department for Communities and Local Government (DCLG) violated Treasury guidelines by failing to carry out any assessment of alternative options before going ahead with the scheme.
European Commission calls for the UK to raise taxes on expensive homes, build more housing and "adjust" the Help to Buy scheme are "in line" with government policy, a Treasury spokesman has said.
"The European Commission continues to support the UK Government's strategy including its commitment to deficit reduction. The Commission's recommendations are in line with the Government's approach," the spokesman said.
The group chief executive of Legal & General, Nigel Wilson, has told ITV News house prices will keep rising until the Government is bolder in tackling a "chronic shortage" of affordable new homes.
L&G boss says Help to Buy is "a huge emotional distraction from the main issue" a chronic shortage of new homes.
Nigel Wilson says society will never get the quantity of new homes it needs unless the government starts building affordable homes.
Nigel Wilson "the government should be building affordable homes. It worked in the 40s, 50s and 60s, it can work in 21st century as well"
The government's "restrictive" Help to Buy mortgage scheme should offer a wider variety of mortgages to make it more attractive to those eligible, a mortgage broker has told ITV News.
Jonathan Harris of Anderson Harris said: "The products on offer tend to be very short-term fixes and with the rates people are obviously paying a preview for the higher loan-to-values.
"It would be good to see a more competitive product range and more innovation from the lenders," he added.
Chancellor George Osborne has tweeted welcoming figures which show the Help to Buy mortgage scheme has been used in 7,313 purchases so far.
The Help to Buy scheme is a "huge success" that has helped young people "without a rich mum and dad" to get on to the property ladder, David Cameron has said.
The Prime Minister was speaking after figures showed the government's mortgage guarantee scheme had been used in 7,313 completed purchases in its first six months.
Chief Secretary to the Treasury Danny Alexander says Help to Buy "is not fuelling a housing boom" and dismissed calls for the mortgage scheme's limit to be cut.
Currently, mortgage guarantees are available for homes valued up to £600,000 - but Mr Alexander insists that the scheme is primarily helping people at the lower end of the market.
"What people should take confidence from in these figures is that Help to Buy is helping 95% outside of London, and it is helping people on low and middle incomes," he said.
"The average house price for people who are buying a property under the [mortgage] scheme is £150,000."
Prime Minister David Cameron has tweeted welcoming today's Help to Buy figures while on a visit to a construction site in Ilkeston in Derbyshire, where Taylor Wimpey is building 280 new homes.
Help to Buy is helping people get on the housing ladder: 27,000 have bought a new home; 85% first time buyers; 94% outside London.
Help to Buy is also getting new homes built: 74% of the deals are for new build homes. More jobs, more security and a brighter future.