Government offers to pay first-time buyers deposits

First-time buyers could have their deposits paid for them by the government.

A new scheme could see 18,000 first-time buyers earning under £60,000 offered interest-free government loans to cover their deposits.

Up to 30 per cent of the value of a property could be borrowed.

The government claims this means a first-time buyer could purchase a house worth £180,000 for as little as £126,000.

However, the scheme has led to criticism it will drop first-time buyers into negative equity as house prices are falling.

The last lender to offer 100 per cent mortgages – Abbey – dropped its range in April.

Yesterday the head of Barclays, John Varley, described the practice of lending over 100 per cent mortgages as "madness".

Under the government deal 130 developers have agreed to offer the HomeBuy Direct scheme at sites across England.

It is also hoped the scheme will increase housing demand and help the construction industry which is facing severe downturn – affected by both falling property prices dissuading buyers and the drying up of mortgage lending from the banks.

Stewart Baseley, executive chairman of the House Builders Federation, said: "The housing market is so critical to the wider economy that such government intervention is imperative.

"We now need to see further steps taken to restore mortgage provision, with urgent action on Sir James Crosby's recommendations a necessity."