THE GOVERNMENT will today launch a scheme to encourage first-time buyers to take out 95 per cent mortgages even as new figures show the largest monthly drop in house prices since before the financial crisis.

Prime Minister David Cameron and his deputy Nick Clegg will today unveil a plan to “help people get on the property ladder” by offering to underwrite potential losses on a proportion of mortgages for first-time buyers.

The aim is to bring the average deposit demanded by lenders from 20 per cent down to just five per cent in order to help those who cannot find enough cash to buy.

Alongside the scheme, the government will also plough £400m of taxpayers’ money into subsidies for housebuilders to construct 16,000 new homes. And council tenants looking to buy their housing will see the discount offered on the price double.

But the timing could hardly be worse. The launch of the government’s scheme to take on hundreds of millions in risky guarantees for highly leveraged mortgages comes as new data shows the troubled state of the housing market.

Asking prices have tumbled by 3.1 per cent this month according to the latest Rightmove index, while a separate survey has revealed another sharp dip in UK household finances.

The listed value of homes in England and Wales fell £7,528 on average this month – the largest monetary fall since December 2007 and third largest percentage fall on record, Rightmove said today.

“Markets dislike uncertainty, and so do people who are deciding whether or not to enter the property market,” said Rightmove’s Miles Shipside.

“It’s no great surprise that those who have braved the stormy conditions have had to accept a substantial ‘haircut’ on their asking prices.”

In line with Cameron’s previous stance that households must pay off their debts, Brits are putting off big financial commitments such as moving home due to worries over the Eurozone crisis and the impending economic slowdown.

Even a significant drop in supply could not prop up prices. In England and Wales, listing numbers this month were down 13 per cent on October as the run of terrible economic news deterred prospective sellers.

And the number of properties placed on the market in London plummeted faster than in any other region in England. There were 16 per cent fewer sellers in the capital than in November 2010.

Asking prices in London fell at a slower rate than elsewhere, down 1.2 per cent on October. But the average asking price for a home in London stands at a still-considerable £444,724, compared to £232,144 for England and Wales.

Another survey showed yet another deterioration in family finances, stoking fears that a miserable Christmas is on the way for the retail sector.

Household finances worsened last month at their sharpest rate since August, measuring 34.6 on Markit’s widely-observed index, down from 35 in October. All readings below 50 indicate a deterioration.

The survey showed that twice as many households expect their finances to worsen in the year ahead compared to those that forecast an improvement (24 versus 48 per cent).