(Corrects start of scheme date from 2013 to 2014 in paragraph 7)
LONDON, March 20 (Reuters) - Britain launched a new plan to help struggling home buyers on Wednesday as the government looks to support growth in a housing market seen as key to economic recovery.
Shares in Barratt Developments and other British housebuilders leaped after Britain's finance minister George Osborne unveiled the initiative, called 'Help to Buy', in a budget speech to parliament.
"Help to Buy is a dramatic intervention to get our housing market moving," Osborne said.
"For newly built housing, government will put up a fifth of the cost. And for anyone who can afford a mortgage but can't afford a big deposit, our mortgage guarantee will help you buy your own home," he said.
He said Britain would commit 3.5 billion pounds ($5.3 billion) in capital spending over the next three years to shared equity loans for new-build homes worth less than 600,000 pounds, allowing buyers to purchase them with a 5 percent deposit.
The government will offer a loan worth up to 20 percent of the home, which is interest free for the first five years. While previous help was only available to first-time buyers with incomes below 60,000, the scheme is open to all buyers.
The second part of the plan will see the government guaranteeing 130 billion pounds of mortgages, allowing lenders to provide more loans to people without a big deposit. It will be available from the start of 2014 and run for three years.
The initiative is an extension to existing government programme New Buy, whereby buyers could purchase homes worth less than 500,000 pounds with a 5 percent deposit, and a shared-equity scheme for first time buyers called First Buy.
At 1417 GMT, shares in Barratt Developments were up 7.6 percent while Redrow, Bellway, Persimmon and Taylor Wimpey were up by 3.3 to 6.3 percent.
The government has come under pressure in recent years to help struggling home buyers as banks reined in their lending to the sector, making it hard to attain mortgages, and incomes remain squeezed by recession.
Housebuilders Persimmon and Taylor Wimpey have said in recent weeks that they were starting to see the effects of the government schemes on reservations this year and were optimistic that the housing market had started more strongly than in 2012.
The British Property Federation and Home Builders Federation (HBF) said they both welcomed the measures, although the latter said it was "guardedly" doing so.
"Extending New Buy to the second hand market should create churn in the market place and drive up sales across the board - including for new homes. We do though need to ensure a level playing field across the whole market," said Stewart Baseley, HBF's executive chairman.
"Government must be praised for its attempts to stimulate activity, but must also be wary to get the details right," he said.
Osborne also said the government was actively considering with the Bank of England whether there were potential extensions to the Funding for Lending scheme, which has been credited by housebuilders with helping to free up mortgage lending.
$1 = 0.6615 British pounds Reporting by Brenda Goh; Editing by Tom Pfeiffer and Helen Massy-Beresford