A Government scheme aiming to help people with smaller deposits buy a new-build home has been scuppered by lenders' high rates, a major builder said today.

Redrow has attracted just 63 customers to the NewBuy mortgage indemnity scheme since it was launched in March.

It says the initiative is not working well because rates being offered by lenders do not reflect the fact that NewBuy loans are less risky because they are guaranteed by the Government.

Barclays, Halifax, NatWest, Santander and Nationwide are offering NewBuy mortgages, which are aimed at first-time buyers and those who already own a home but only have funds for a 5%-10% deposit.

Redrow told investors today: "The take-up so far has been disappointing with just 63 customers choosing to use the scheme, with many more discouraged by the high interest rates charged by most of the participating lenders."

Developers put 3.5% of the value of every NewBuy home sold into a pot, which is used to protect the lender in the event of a default. The Government has guaranteed the scheme in the event that these funds are not large enough to cover a lender's losses.

Redrow says it would like to see the scheme extended to the second-hand market to stimulate demand across the whole housing sector.

Chairman and founder Steve Morgan says: "Supply of mortgages, although slightly improved on last year, remains a significant constraint, as does public confidence due to the country's fragile economic state."