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The government is to offer armed forces personnel buying their first homes interest free loans towards a deposit.

Defence Secretary Philip Hammond announced that service men and women will be able to borrow an interest free amount of up to 50% of their salary to a limit of £25,000.

The loan is repayable over 10 years and is designed to address the low rate of home ownership among the forces.

The scheme will start on 1 April 2014 and covers a three-year period.

It comes a day after Chancellor George Osborne asked the Bank of England to take bigger role in ensuring the government’s Help to Buy scheme does not fuel a property boom.

‘Set down roots’

Armed forces personnel have lower levels of home ownership than the general population and those who leave often cite the desire to own a home as one of the key reasons why they leave, the Ministry of Defence (MoD) said.

And the MoD said armed forces staff often experience difficulty getting credit because of frequent moves and deployments.

Mr Hammond said of the £200m scheme in a statement: “Service personnel can struggle to enter the housing market as they move around throughout their military career. By giving our troops this extra help they will be more able to set down roots and get onto the property ladder.

“The introduction of this new scheme will help increase home ownership, and provide our armed forces with sustainable lifestyle choices.

“It further demonstrates the government’s commitment to strengthen the Armed Forces Covenant, ensuring that personnel and their families are not disadvantaged by their service.”

The average house price in the UK in September was £172,127, according to the Nationwide building society.

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