Labour says it will make permanent a scheme designed to ensure low-deposit mortgages are available for first-time buyers, if it wins the general election.

The mortgage guarantee scheme was introduced by the Conservatives in 2021 when Rishi Sunak was chancellor of the Exchequer.

It was extended until July next year by current Chancellor Jeremy Hunt.

Labour leader Sir Keir Starmer said he wanted to “turn the dream of owning a home into a reality”.

The measure sees the government act as guarantor for part of a home loan – to encourage lenders to offer low-deposit deals.

The Labour Party says its plan will help more than 80,000 young people get on to the housing ladder over the next five years.

But according to the Office for National Statistics, some 40% of 16.5 million people aged 15 to 34 in the UK were living with their parents in 2022 – about 6.7 million people.

Labour says making the scheme permanent will mean young people facing tough conditions in the private rented sector or struggling to save will not be “locked out of homeownership”.

It would be known as “Freedom to Buy”, the party says.

In a statement, Sir Keir said that Labour would be “on the side of the builders, not the blockers”, announcing the plans around home ownership.

The party leader said: “A generation face becoming renters for life.”

“My parents’ home gave them security and was a foundation for our family.

“As prime minister, I will turn the dream of owning a home into a reality,” he added.

The existing scheme allows lenders to purchase a guarantee on part of mortgages, so if a bank decides to repossess a house, the government could compensate some of its losses.

The Treasury has designed its existing programme “to increase the appetite of mortgage lenders for high loan-to-value lending” – so buyers face paying smaller deposits for their mortgage.

Brokers have pointed out though that borrowers still have to pass checks to show they can afford mortgage repayments, not just raise a deposit.

Mortgage providers may only lend to those with a sufficient regular income, irrespective of any government guarantee.

This could just end up being a backstop as many lenders do not use the guarantee, as they are happy to offer deals with a 5% or 10% deposit in any case.

As part of the plans announced on Thursday evening, the Labour Party also pledged to “reintroduce housing targets”, fast-track planning permissions on brownfield land and prioritise “grey belt” building – moves which it claims could boost building by 1.5 million homes.

First-time buyers were finding the housing market “tough” Guy Gittins, chief executive at estate agents Foxtons, told the BBC Radio 4 Today programme.

“I don’t think that’s going to change in the immediate future,” he said.

He said any incoming government should try to encourage first-time buyers onto the ladder and with “a little bit of sensible policy around the help-to-buy schemes” that can happen.

That also includes reviewing stamp duty, he said.

New house price data showed that the average house price in the UK was £288,688 in May, according to mortgage lender Halifax.

It said prices were “largely static” after edging down by 0.1% from April. But in the year to May, prices rose by 1.5%.

In compiling its figures, Halifax looks at its own mortgage lending and does not include cash buyers or buy-to-let deals.

Cash buyers account for about a third of housing sales.

David Sturrock, a senior research economist at the Institute for Fiscal Studies think tank said that big falls in homeownership during the 2000s meant young adults are now a third less likely to own their own home than they were 25 years ago.

He said that making the current scheme permanent had the “potential” to reduce one of the barriers to getting on the housing ladder.

“Prospective buyers also need to have a sufficiently high income to take out a (bigger) mortgage and afford the repayments,” he said.

As a result, potential buyers in their 30s and from more well-off backgrounds looking to buy outside of London and south-east England were more likely to be able to take advantage of the offer, he suggested.

For its part, the Conservative party is putting forwards its “Family Home Tax Guarantee”.

The Tories have pledged not to increase the number of council tax bands, carry out a council tax revaluation, cut council tax discounts or increase the rate or level of stamp duty which buyers pay when they purchase property.

Laura Trott, Chief Secretary to the Treasury, said: “Only Rishi Sunak and the Conservatives have a clear plan, backed by bold action, to strengthen the economy, bring mortgage costs down and help more people get on the housing ladder.”

SNP candidate for Airdrie and Shotts, Anum Qaisar, said Scottish households were “being punished by Westminster failures”, adding that “the cost of mortgages and energy bills are too high and families need help now.”

The Liberal Democrats said they would “put community need over developer greed, giving people the chance to get on the housing ladder with genuinely affordable houses.”