First-time buyers to be offered cut-price mortgages

Thousands of first time buyers will be able to buy homes with government-backed, cut-rate mortgages under proposals unveiled by Gordon Brown.

Up to 100,000 people will be able to buy homes after raising as little as half the purchase price under the "shared equity" scheme designed to help hard-pressed families on to the property ladder.

Under the proposals, to be published on Wednesday, people will take out mortgages for between half and three-quarters of the price of a property, with the rest of the equity shared between the taxpayer and mortgage lenders.

Ministers will also outline a new package of housebuilding to relieve pent-up demand which has fuelled soaring house prices. The scheme, which could cut average repayments on a £200,000 home by up to £372 a month, was welcomed by lenders and house builders yesterday.

The Chancellor told the BBC's Breakfast with Frost programme that the Government's policies could create a million more homeowners by the end of the parliament.

He said: "I think over the next parliament, with 100,000 benefiting from the shared equity scheme, we could probably have a million more home owners in Britain as a whole.

"And basically we are moving on to the next stage of our economic policy.

"We have created stability in this country, and now we must ensure that the benefits go particularly to young couples who want to own their own homes, who find that house prices have been high, who could benefit from low interest rates, but they need some help to get on to the first rung of the housing ladder.

Mr Brown added: "That would mean that young couples who never thought that they could get into the housing market because house prices were high, even in the South-east where house prices have been higher, can actually get the first chance to buy their own home and get it at the time that they want to do it."

Under the scheme, buyers would raise mortgages for 50 per cent or 75 per cent of their property. The rest of the cost would then be covered by the Government and the mortgage lender or housebuilder.

Buyers would then pay rent - capped at 3 per cent - on the proportion of the home they do not own.

They would retain a right to buy their house outright if their finances improve. A Treasury spokesman said a couple buying a 50 per cent stake in a £120,000 house would pay around £372 a month in mortgage repayment, plus around rent of £150 a month. But their total payments of £522 would be significantly less than the £746 cost of repaying a full mortgage on the house.

The spokesman said the scheme would not be confined to "key workers" such as teachers and police officers, but would be "targeted at those who need financial support".

George Osborne, the shadow Chancellor, welcomed the proposals but warned that it might be too restrictive.

He said: "We don't mind if they adopt our best ideas. However we will need to see all the details of the scheme. From what's been said today it may be too complex or restrictive which are common traits of this Government."

Vince Cable, Treasury spokesman for the Liberal Democrats, warned: "There is a danger that this money will be wasted and benefit only house-buyers who do not need it, such as speculative buyers."

Sue Anderson, of the Council of Mortgage Lenders, welcomed the scheme, but warned: "We've got to see more housing supply accompanying this, otherwise there's the risk that all you do is push up house prices further."