The measure will offer guarantees which could in theory support up to £130bn worth of mortgage lending between 2014 and 2017 and encourage lenders to provide high loan-to-value mortgages.

In the past, private insurers provided so-called ‘Mortgage Indemnity Guarantee’ insurance policies (also known as ‘Higher Lending Charges’),  which borrowers were obliged to take out when they borrowed mortgages worth more than 80% of a property’s value.

The insurance protected the lender against the increased risk of the borrower defaulting on their mortgage payments, but the borrower paid for the cover.

Since the credit crunch occurred in 2007, private insurers withdrew from the market. That, combined with lenders’ generally reduced appetitite for risk led to a dramatic reduction in the number of mortgages available at 80% LTV and above,

The Government has now said that it will play the role of the insurer, which may encourage lenders to offer more deals to those with smaller deposits, although in reality the availability of higher LTV mortgages will continue to depend on lender’s wider risk appetite. The latter is heavily influenced by the amount of capital mortgage lenders are required to hold on their balance sheets against the money they lend out.

UK banks have to hold six times as much capital on their books against a  mortgage lent out at 95% LTV than at 60% LTV.

The new insurance  is one component of the Help to Buy scheme announced in today’s Budget. The other builds on NewBuy to provide shared equity loans worth up to 20% of the value of a new build home.

The Chancellor told a rowdy House of Commons he wanted to help those who aspired: “What symbolises that more than the desire to buy your own home?”

The government-guaranteed mortgages would be available to all home buyers subject to usual checks.