The fund will support architects, developers, councils, housing associations and small builders to build properties that will increase the quality of design, as part of the initiative which has pledged to build 200,000 starter homes by 2020.
Brownfield sites will also be acquired using the fund to provide land for starter homes, with the money from the sales to be received by the government.
The Starter Homes scheme, which was made available in March, allows first time-buyers under the age of 40 a discount of 20% off their home purchase. However, the delivery targets set by the government, which have been doubled from their original target of 100,000 to 200,000, have been thrown into doubt by a number of industry experts.
A further £10m has also been made available by the government for local authorities to prepare more brownfield land for the development of starter homes. The grant funding will aim to help councils to carry out preparation, clearance and infrastructure work on the sites to make them viable for starter homes.
Housing minister Brandon Lewis said: “Helping young people achieve their dream of home ownership is a real priority for this government. We’ve already helped more than 100,000 households buy a home through our ground-breaking Help to Buy scheme and starter homes are another game-changer.
“This fund will help kick-start that change and show young people across the country the quality they can expect when they buy a starter home.”