The government has announced a new scheme to help more people into homeownership.

The new equity loan scheme for England – called Your First Home – will be confirmed at next month’s Budget.

The scheme is expected to support 2.5% deposits, backed by 20% government-backed equity loans, for prospective first-time buyers purchasing a new-build property from a developer signed up to the scheme.

People will be able to access equity loans with an initial interest free period, meaning that those who use the scheme could save hundreds of pounds per month compared to a 95% mortgage.

The Your First Home scheme will help tackle the deposit barrier for first-time buyers who would be unable to afford their first home otherwise, building on the government’s existing work to help more young people and families onto the housing ladder.

The scheme will also set a household income cap with local property price caps to further ensure support is targeted at those who need it, the detail of which will be set out at Budget.

With the new build housing market currently facing challenging headwinds driven by international economic pressures and rising construction costs, the scheme will also act as a much-needed stimulus to support the market and boost housing supply.

Developers will be expected to make a contribution when signing up to the scheme to help cover costs. Further details, including costs and implementation timelines, will be announced by the Chancellor at the Budget next month.

Prime Minister, Andy Burnham, said: “Too many young people are struggling with the cost of housing, with many giving up hope of ever having a home to call their own.

“So, we will step in to help more first-time buyers on to the housing ladder.”

Commenting on the scheme, Neil Jefferson, Chief Executive of the Home Builders Federation, said: “We welcome the government’s announcement and its recognition of the significant challenges facing first-time buyers and the wider housing market. We have been calling for action to improve access to home ownership, and a well-designed scheme has the potential to make a real difference to households who are struggling to get onto the housing ladder.”

“It is important now that the government moves quickly to implement the scheme. We look forward to working constructively with government and the wider sector to help refine the detail and ensure the scheme is as effective as possible. It is important that it works for buyers across different parts of the country and for housebuilders of all sizes, while supporting the government’s wider ambition to increase housing delivery.”

“The housebuilding industry is ready to play its part, delivering new homes and jobs at pace, with increased investment, and we will continue to work closely with Government to help get the scheme up and running as quickly as possible.”

Emma Toms, Chief Executive of the New Homes Quality Board, said: “Support to help people buy homes is welcome, but it is critical that all new homes are built to a high standard.

“The government has already made an important commitment to creating a statutory new build quality code. It should now introduce it urgently, ensuring taxpayer-backed homes are covered by consistent, universal requirements that safeguard buyers and shore up market confidence.”