Nearly eight in 10 private renters are now saving for a deposit, a survey published by the government suggests.
The initiative, designed to incentivise lenders to provide mortgages to those with just 5 per cent deposits, was unveiled by the chancellor, Rishi Sunak, at the Budget.
But it comes as house sellers demand record sums for properties.
Last week Rightmove said average asking prices hit a new record high of £327,797 in April, up 2.1 per cent month on month.
But ministers said they were responding to a lack of 95 per cent mortgages, which they said had been triggered by the coronavirus pandemic and its wider economic fallout.
Robert Jenrick, the housing secretary, said ministers wanted to help turn “‘Generation Rent’ into ‘Generation Buy’”.
For too many people “no matter how hard they work, home ownership can seem out of reach,” he said. “One of the biggest divides in our country has been between those who can afford their own home and those who cannot.”
Ministers also hope the scheme will help secure jobs in the construction industry, which has come under strain during the pandemic.
From today, the mortgages will be available from high street names Lloyds, Santander, Barclays, HSBC and NatWest. Virgin Money will follow next month.
Mr Sunak said the government recognised that saving for a large deposit can be hard, especially for first time buyers.
Miguel Sard, managing director of home buying NatWest, suggested the scheme, which will be available on properties up to £600,000, would especially help younger or first-time buyers.
The pandemic has led to a reduction in the availability of what are called high loan-to-value mortgages.
The new government-backed guarantee will be valid for up to seven years after a mortgage starts, as evidence shows that loans are unlikely to default after such a long period of time.
The scheme is intended as a temporary measure, however. Ministers have said it will be open until at least December next year, at which point it is hoped the mortgage market will have recovered from the effects of the pandemic.
After that the government will review the scheme to assess whether or not it needs to continue.
Ministers say that since 2010 more than 685,000 households have purchase a home through government-backed schemes, including Help to Buy and Right to Buy.
According to Moneyfacts, the financial information website, 5 per cent deposit mortgages have already started to make a return to the market.
Moneyfacts recently found 34 deals for borrowers in April, up from just five in March.
But a year ago more than 160 deals for borrowers with 5 per cent deposits were available.
Michelle Andrews, HSBC UK’s head of home buying, said: "After such a turbulent year it is great that this scheme will make a real difference in enabling first-time buyers who didn’t think they would have a chance of getting a mortgage and home movers to get the keys to their new home."