George Osborne will equip the Bank of England with greater powers to prevent the Government's Help to Buy scheme from causing a property boom.
From January, the Help to Buy initiative will provide mortgage guarantees on properties worth up to £600,000.
But the BoE Financial Policy Committee (FPC) will asses the scheme annually from September 2014, the Treasury and central bank announced yesterday.
They could recommend that the cap is reduced.
The FPC was initially due to only assess the plan after three years.
Fears have been voiced that the attempt to kick-start the market could result in a house price "bubble", with the market overheating and borrowers over-stretching themselves.
This is of particular concern in the capital, where prices have risen by ten per cent year-on-year.
The FPC could also increase the cost of loans by advising the Treasury to raise the fees paid by lenders for the guarantees.
Business Secretary Vince Cable has already expressed his concerns that the scheme could produce an asset price bubble.
But Mr Osborne responded with "let's not pretend there's a housing boom" and insisted it was important to "go on trying to fix specific problems in our financial system".
A Treasury spokesman said: "Now that the FPC have set out their latest assessment of the housing market, the final such assessment before the launch of the Help to Buy scheme, we are setting out more detail on how its role will work.
"The FPC's assessment this week - in line with that of the Chancellor and the Governor - is that recent developments in the housing market represent a broadening recovery from low levels of activity, but that we must remain vigilant as that recovery progresses.
"The Chancellor has asked the FPC to work with him every September, starting next year, to assess the ongoing impact of the Help to Buy scheme. Following that annual assessment he has proposed that the FPC advise him on whether the key parameters of the scheme - the price cap and the fees charged to lenders - remain appropriate.
"At the end of the scheme's three-year life, if a future government proposes to extend the scheme, the FPC will have to give its agreement."
Additional reporting by Press Association