A new state-backed deposit scheme could help up to one million first-time buyers finally get on the housing ladder. The scheme would slash housing costs and boosting living standards, according to influential think tank the Resolution Foundation.

The proposal, dubbed a ‘Starter Deposit’ scheme, would see the Government offer equity loans to cover a 5% deposit, potentially topped up with as little as £3,000 of buyers’ own savings. Under the proposed scheme, the state would provide a targeted equity loan to cover deposits, focused on lower-priced homes.

The Foundation claims this could deliver a “double win” because the scheme would allow typical buyers to save £2,600 a year because mortgage repayments would be lower than rent.

At the same time, this typical buyer would build average property wealth of £1,700 in year one because the value of their home goes up.

The Foundation’s research lays bare how sharply home ownership has fallen among ordinary working families.

Low- and middle-income households – those between the 20th and 60th income percentiles – have seen ownership rates plunge by 17.4% since 2008, compared with a far smaller 4% drop among better-off families.

The figures underline a growing divide in Britain’s housing market, with those on modest incomes increasingly locked out.

Deposit barrier blocks most buyers

The analysis looked at around 8 million potential first-time buyers aged 21 to 55 who are working but do not own a home.

While 50% could meet mortgage income rules, just 15% can scrape together a deposit.

For many, saving is painfully slow:

• Typical buyers need 5 years to build a 5% deposit
• Around 1.7 million would need over a decade

As a result, roughly one in three buyers now rely on the ‘Bank of Mum and Dad’, fuelling inequality between those with family wealth and those without.

Loans would be capped at 5% of lower-quartile house prices, meaning buyers could purchase homes worth up to:

• £175,000 in the North West
• £325,000 in London and the South East

Warning over mortgage risks

The think tank cautions against simply loosening mortgage rules further, despite recent regulatory easing. It notes repayment pressures for first-time buyers are already as high as in the early 1990s and mid-2000s, while interest rates remain uncertain amid global instability.

‘Dream of home ownership slipping away’

Simon Pittaway, senior economist at the Resolution Foundation, said the core problem remains deposits.

He said: “The dream of owning a home is a distant one for many people today, with home ownership rates falling particularly fast for low-and-middle-income families. The main barrier to home ownership is finding a deposit in today’s world of sky-high house prices.”

He added that while building more homes is essential, it will take time – leaving many reliant on family support.