Cut-price mortgages offered to help first-time buyers gain foothold in property market

Gordon Brown yesterday gave the go-ahead to a new scheme which will help thousands of struggling first-time buyers get on to the property ladder by offering them cut-price mortgages.

The chancellor has struck a deal with three of Britain's biggest mortgage lenders that will offer home-buyers the chance to obtain a home loan for 75% of the property's value. The remaining 25% would be split equally between the lender and the government.

The initiative is a key plank in the government's strategy for helping more people into home ownership. But some commentators said that it will only benefit an estimated 20,000 households between now and 2010, and would therefore "hardly make a dent in the problem".

Three lenders - HBOS, which includes the Halifax, plus the Nationwide and Yorkshire building society - have signed up to the scheme, which is known as "Open Market HomeBuy".

It will be open to key public sector workers, social tenants, those on the housing register and other first-time buyers identified as priority cases by regional housing boards. However, details of exactly how it will operate, and the precise eligibility criteria, are still being worked out.

Ministers have proposed that an individual would take out a mortgage to pay for 75% of the property's value, with their mortgage lender providing a 12.5% "top-up" equity loan, and the government picking up the tab for the remaining 12.5%.

The scheme will begin operating in October 2006 - six months later than was originally hoped - and it will run on a pilot basis. In recent months there had been some question marks over the future of the initiative after the Abbey bank pulled out of talks over the trial scheme, saying that there were too many unanswered questions over how it would work.

Yvette Cooper, the housing minister, said that there were plenty of families who wanted the chance of home ownership and have the steady income to support it, but cannot keep up with rising house prices.

"That's why it is so important to promote more shared equity schemes to give them a chance to get their first foot on the housing ladder, " she said.

However, the Royal Institution of Chartered Surveyors said: "The scheme is so small that it will account for less than half of one per cent of transactions per year, benefiting only 20,000 buyers over five years."

The Council of Mortgage Lenders said that the new private funding for equity loans, though modest in scale, "will give us real experience of operating a public/private support scheme for first-time buyers".

However, a spokeswoman added that the mortgages offered to people participating in the scheme "will have a particular price-tag attached", and would not be the cheapest on the market.

SPF Sherwins, the affordable housing arm of mortgage lender Savills Private Finance, pointed out that the way the scheme was structured meant that the government would bear the brunt of any negative equity.