The chancellor Rishi Sunak has announced a government-backed guarantee scheme to help buyers with low deposits fulfil their dream of home ownership, in his budget on 3 March.

From April, the government will provide a guarantee to lenders who offer mortgages to people with a deposit of 5% for homes costing up to £600,000.

Lloyds, NatWest, Santander, Barclays and HSBC banks have already signed up to the scheme with others, including Virgin Money, also expected to join.

Low-deposit mortgages have been scarce since the start of the coronavirus pandemic. With few lenders offering loans of more than 90%, first time buyers have been left struggling to get a foot on the housing ladder, particularly in London.

The chancellor also announced that the stamp duty holiday, introduced in the summer, will be extended until the end of June. After that, a £250,000 threshold will be put in place until 1 October.

According to Mr Sunak: “Even with the stamp duty cut, there is still a significant barrier to people getting on the housing ladder – the cost of a deposit. So, I’m announcing today a new policy to stand behind homebuyers, a mortgage guarantee. Lenders who provide mortgages to people who can only afford a 5% deposit will benefit from a government guarantee on those mortgages.”

The chancellor hailed the move as: “A policy that gives people who can’t afford a big deposit the chance to buy their own home. As the prime minister has said, we want to turn generation rent into generation buy.”

Mark Hayward, chief policy adviser at Propertymark said: “Alongside the potential extension of the stamp duty holiday that we have been calling for, this new scheme will go some way in giving some hope to first time buyers at a time when the size of deposits required means they fall at the first hurdle.”

Read more about the scheme in the Evening Standard.