The government has confirmed that a new equity loan scheme, Your First Home, will be introduced at next month’s Budget, with the aim of helping more people achieve homeownership.

The scheme is set to tackle the deposit barrier for first-time buyers by introducing 2.5% deposits, alongside 20% government-backed equity loans, for those purchasing a new-build property from a developer signed up to the scheme.

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

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

Developers will also be expected to make a contribution when signing up to the scheme to help cover costs.

Further details, such as costs and implementation timelines, will be announced by the Chancellor at next month’s Budget on 28 October.

Executive director at IMLA, Kate Davies, said the association has welcomed the government’s introduction of the scheme.

She added: "IMLA has been calling for targeted support for aspiring first-time buyers for some time. Our research estimates that around 3.5 million households who might historically have been expected to become first-time buyers have failed to do so since the financial crisis, so the scale of the challenge is considerable.

"There are real advantages to building on an equity loan model with which lenders, advisers and developers are already familiar. We also have a decade of experience from Help to Buy to draw on. Restricting support to new-build homes can help stimulate additional supply, but it also narrows the choice available to first-time buyers and risks concentrating the benefits among developers. The design of the scheme therefore needs to ensure that support delivers genuine value for buyers as well as encouraging the building of much-needed new homes."

Chapter manging director at Just Mortgages, John Doughty, concluded: "We eagerly await the full details at the upcoming Budget, in particular whether the new scheme will feature a higher weighting to account for higher property prices found in London – a critical component of the original Help to Buy. I’d also love to see the scheme include pre-owned properties to really maximise the opportunity and unlock more potential buyers.

"Either way, this could be a tremendous opportunity and one that advisers should grab with both hands. Similar to 100% options we’ve seen enter the market, Your First Home could offer us the best of both – helping those most in need to get on the ladder, or at the very least, encouraging potential buyers to open the door to a conversation and exploring the full range of options available to them."

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