Government plans 2.5% deposit scheme for first-time buyers

First-time buyers in England could purchase a new-build home with a deposit of just 2.5% under a new government equity loan scheme, according to an exclusive report by The Guardian.

The “Your first home” programme will provide eligible buyers with an equity loan worth 20% of the property’s value, alongside an initial interest-free period. The policy is aimed particularly at households with regular incomes that have struggled to build a substantial deposit and cannot rely on financial help from their families.

Prime minister Andy Burnham is expected to make the scheme a significant part of the government’s housing policy, with The Guardian reporting that it will be formally announced by John Healey in the Budget and open for registration by the end of 2026.

Eligibility will be restricted through household income and deposit caps, while limits on property prices are intended to focus support on more modest new-build homes. The precise thresholds have yet to be disclosed.

Developers taking part will also be required to pay a fee linked to property values, contributing towards the cost of operating the programme.

FOCUS ON BUYERS WITHOUT FAMILY SUPPORT

Speaking to The Guardian ahead of the Labour party conference in Liverpool, Burnham said: “Too many young people are struggling with housing, with many giving up hope on ever having a home to call their own.

“So we are going to help more first-time buyers on to the housing ladder, especially those who can’t call on the bank of mum and dad.

“‘Your first home’ will get them the keys to their own front door, and give builders the confidence to deliver the high-quality new homes the country needs.”

The proposals represent a return to government-backed equity lending for homebuyers following the closure of the previous Help to Buy equity loan scheme.

According to The Guardian, ministers have sought to address some of the criticisms levelled at the earlier programme, including claims that it supported households that could have bought without government assistance and added to house price inflation.

The previous Help to Buy scheme, introduced when George Osborne was chancellor, supported about 387,000 purchases.

Burnham told The Guardian: “We think some adjustments needed to be made to it to make it focus on the people who really need support, and I think our scheme does that.”

FUNDING AND HOUSING SUPPLY

The Guardian reported that officials intend to fund the programme by reprioritising existing government budgets. It remains unclear whether that will involve reallocating money already intended for housebuilding or reductions elsewhere.

The policy marks a change from the approach taken under Keir Starmer’s government. The Guardian reported that housing ministers and officials had argued for a new version of Help to Buy, but the proposal was rejected by then chancellor Rachel Reeves in favour of concentrating resources on increasing housing supply.

Burnham rejected suggestions that providing additional support to buyers could increase house prices by stimulating demand without a corresponding rise in supply.

He told The Guardian: “No, it’s also about making sure that we are building more homes across the board … We are working actually to increase supply of housing, which also helps in terms of not pushing prices up.”

Burnham has also set out plans to strengthen the ability of local leaders to take control of long-term empty and derelict properties, according to The Guardian.

Mark Harris, chief executive of mortgage broker SPF Private Clients, commented: “The deposit is the biggest barrier to many first-time buyers getting onto the housing ladder if they don’t have the help of the Bank of Mum and Dad. So any assistance here will make a real difference to those struggling to buy on their own.

“However, let’s not forget that Help to Buy worked best for house builders, not so much for first-time buyers.

“Extending a scheme to all homes would be so much better than simply targeting new builds, and I cannot see a huge issue in doing so.

“That said, any stimulus for the housing market is a good thing. The market is flat and needs some intervention to kick start it. More activity and an increase in transactions would benefit not just the housing market itself but the many connected industries and wider economy.”