First-time home buyers must be aware of the new Government plan

First-time home buyers could afford to clamber on to the property ladder by owing a deposit as low as 5 per cent rather than the 20 per cent typically demanded by lenders since the credit crunch.

The New Buy Guarantee is the latest Government backed plan to tackle the worst housing crisis in a generation and boost demand for newly built homes.

Prime Minister David Cameron announced the scheme on Monday and declared that it will help up to 100,000 first-time buyers achieve their dream.

Security for the deal will be provided by the Government through a 5.5 per cent guarantee and by the developers. They will put 3.5 per cent of the purchase price into an indemnity fund for each property sold and those involved so far include Barratt, Bellway, Bovis, Linden Homes, Persimmon, Redrow and Taylor Wimpey.

With this kind of security in place lenders have declared to be ready to start offering 95 per cent deposit. In fact, even if property prices fall and the borrower falls into negative equity and defaults, they will still be able to get their money back. Barclays, Nationwide Building Society and Nat West Home have already signed up.

Council of Mortgage lenders director general Paul Smee said that New Buy Guarantee will contribute to both housing supply and to economic growth in the UK.

However critics warned that a combination of 95 per cent mortgages and a significant rise in interest rates could lead to homebuyers being unable to pay back their loans.