By Brenda Goh
LONDON (Reuters) - Britain launched incentives to help struggling home buyers on Wednesday as the government looks to support growth in a real estate market it sees as key to reviving the country's ailing economy.
Chancellor George Osborne said Britain would commit 3.5 billion pounds over the next three years to shared equity loans for new-build homes worth less than 600,000 pounds, allowing buyers to purchase them with a 5 percent deposit.
"For newly built housing, government will put up a fifth of the cost," he said in a budget speech to parliament. That loan would be interest-free for five years and the scheme open to all buyers.
The government will also guarantee 130 billion pounds of mortgages from 2014 for three years, allowing banks to provide more loans to people without big deposits.
Britain's housing market has been stuck in the doldrums for years, due to a combination of high prices, stagnant incomes and a banking sector that the financial crisis has made reluctant to hand out mortgages.
Shares in homebuilders rose sharply after Osborne's announcement, which the industry said could help kick-start the market.
"This is a major boost for homebuyers and house builders," said Barratt Development's Chief Executive Mark Clare. "We are now gearing up to meet the increase in inquiries that we expect to see."
The scheme "will now give thousands of existing homeowners a much-needed helping hand," said Mike Farley, chief executive of rival Persimmon.
HOUSING BUBBLE RISK?
Jefferies analyst Anthony Codling said the shared equity scheme could help up to 74,000 home buyers over three years, equating to about 25 percent of the current new-build output.
The mortgage guarantee could support about 800,000 mortgages, representing a 30 percent increase in housing transactions over the 844,000 conducted during 2012, he said.
Housebuilders Persimmon and Taylor Wimpey have said in recent weeks they were starting to see the effects of existing schemes on reservations and were optimistic the housing market had started more strongly than in 2012.
The new plan, called Help to Buy, builds on New Buy, which enabled buyers to purchase homes worth less than 500,000 pounds with a 5 percent deposit, and a shared-equity scheme for first-time buyers called First Buy.
At 1647 GMT, shares in Barratt Developments were up 6.59 percent while Redrow, Bellway, Persimmon and Taylor Wimpey were up by 3.1 to 6.1 percent.
The British Property Federation and Home Builders Federation (HBF) said they both welcomed the new measures, although the latter said it was "guardedly" doing so.
The Royal Institute of Chartered Surveyors, which represents property professionals, said that the measures were "much-needed" but that the government "needs to be careful this doesn't create another housing bubble - pushing prices up at the expense of buyers."
Osborne also said the government was considering with the Bank of England ways to extend the Funding for Lending scheme, credited by housebuilders with helping to free up mortgage lending.
In his budget, Osborne turned to the Bank to do more to help spur the stagnant economy, halved this year's growth forecast and vowed to stick with the government's austerity programme.
(Reporting by Brenda Goh; Editing by John Stonestreet)