First-time buyers struggling to raise a deposit received a boost today with the announcement of a new scheme to help them get on to the property ladder.
The Government has earmarked £250 million from the Bank Levy to help around 10,000 households with incomes of up to £60,000 buy a new-build property.
Under the FirstBuy initiative, buyers must save a deposit worth 5% of their property's value, with the Government and housebuilders putting up 10% each through an equity loan, enabling people to qualify for 75% loan-to-value mortgage.
The equity loan will be interest-free for the first five years, with interest charged at 1.75% in year six, and at inflation plus 1% thereafter.
The Government hopes the scheme will also provide a boost to the construction industry and support up to 50,000 jobs, after the number of new homes that were built fell to their lowest peacetime level since 1923 last year.
The initiative is almost identical to the Homebuyer Direct scheme that was launched by the previous government in 2009, under which the government and housebuilders provided equity loans totalling 30% of a property's value.
Around £275 million of funding was made available for Homebuyer Direct and it has helped 9,000 people to buy their first home.
The Council of Mortgage Lenders welcomed the announcement, saying it would provide "modest help" for first-time buyers.
A spokeswoman said: "Every little helps, but it is not going to fundamentally change the landscape."
First-time buyers have been struggling to get on to the property ladder since the credit crunch struck and lenders began to demand large deposits in order for people to qualify for the best rates.
Just 194,600 people bought their first home with a mortgage in 2010, well down on the more than 500,000 people who got on to the property ladder each year during the late 1990s and early part of the last decade.
First-time buyers are currently putting down deposits that average around 20% of their property's value, while the average age at which people who do not receive parental help to buy their first home has risen to 31.
Housing Minister Grant Shapps hosted a summit earlier this year in which he called on lenders to do more to help struggling first-time buyers, through product innovation and initiatives to boost shared ownership and shared equity loans.
The Home Builders Federation welcomed the announcement, saying: "Introducing FirstBuy is a vital and extremely positive move to help thousands of potential first-time buyers currently being thwarted by the chronic lack of mortgage availability.
"The HBF has long campaigned for the introduction of this measure which will also ensure more homes are built, providing a much-needed economic boost to local economies up and down the country and creating tens of thousands of jobs."
But other commentators were less optimistic about the impact of the scheme.
Campbell Robb, chief executive of housing charity Shelter, said: "This first-time buyers' package is the policy equivalent of a sticking plaster on a broken leg, and will have little impact on our housing crisis.
"In fact today's announcement will help less than 1% of those struggling to get on the housing ladder, leaving them more likely to win a prize on the lottery than be helped through this small-scale scheme."
David Whittaker, managing director of Mortgages For Business, said: "The pool of buyers that qualify for the Government's FirstBuy scheme is so small you couldn't even have a bath in it. If the Government thinks this is going to transform the property market they're mad."
Nicholas Leeming, business development director at Zoopla.co.uk, said: "Osborne's FirstBuy scheme won't go beyond scratching the surface of the problem faced by the vast majority of first-time buyers as it's exclusively for new build properties and only around 11,000 buyers will benefit - a fraction of the overall number of potential first-timers.
"Mortgages are still required and this scheme leaves lenders, who have had a strangle hold on the market for the last two years, in a win-win situation.
"Being able to lend to a select group of first-time buyers without the normal level of risk makes lending to those who don't qualify for the scheme even less attractive."
David Toplas, chief executive of the Investors in Housing Fund at Mill Group, said "The Chancellor's Budget announcement of support for first-time buyers is encouraging, but is a drop in the ocean that fails to address the sheer scale of the problem."
The new scheme was welcomed by housebuilder Barratt Developments' chief executive Mark Clare, who described it as "exactly the tonic the housing market needed".
David Orr, chief executive of the National Housing Federation, said: "First-time buyers have effectively been locked out of the housing market since the credit crunch by the mortgage drought.
"This scheme will offer first-time buyers on moderate incomes a much needed helping hand towards buying an affordable home and is a very welcome move."
Ian Fletcher, director of policy at the British Property Federation, said: "This package broadly makes sense, because it targets home deposits, and is about as much as the Government could realistically do in current circumstances."
Mr Osborne also said he would extend the temporary changes to the Support for Mortgage Interest scheme until January 2013.
The move means that people will continue to have to wait for only 13 weeks before they receive assistance under the scheme, which will cover mortgages of up to £200,000, and should reduce arrears for around 100,000 out-of-work homeowners.