Osborne, delivering a speech at a central London development site, said that house prices were still down in real terms, hence the need for government intervention.
He said the average deposit needed to purchase a first-time buyer home was hard to reach for many people and said the Help to Buy scheme would help force down mortgage rates as well as increase availability.
“The government’s Help to Buy scheme is a sensible, time-limited and necessary financial intervention to fix a specific financial problem: the dramatic reduction in the availability of high loan-to-value mortgages,” he said.
“The median LTV for first time buyers has fallen from a long term average of 90% to just 80% now.
“This change is not something we should welcome, it is both a market failure and a social problem – imagine if you’d had to find twice as big a deposit for your first home.”
Osborne, making a wide-ranging speech on the general economic recovery, refuted claims that Help to Buy would cause a house price bubble and said the scheme would also increase housing supply.
“90% and 95% LTV mortgages are not exotic weapons of financial mass destruction – they are a regular part of a healthy mortgage market and an aspirational society.
“Help to Buy mortgages will all be repayment mortgages, not interest only mortgages, so borrowers will rapidly build up a larger equity buffer within just a few years even in the absence of any house price growth.
“Some claim that Help to Buy will boost demand but not supply, but again the evidence suggests otherwise. A report last week by former MPC member Charles Goodhart, now at Morgan Stanley, estimated that Help to Buy could increase housing starts by more than 30% between 2012 and 2015.”