The £1bn guarantee scheme will be channelled into releasing enough credit to allow smaller firms to start delivering schemes, housing secretary Robert Jenrick has announced.

The Government hopes the move will turn the tide on the dwindling numbers of smaller house builders, whose numbers have fallen to just 1,737 firms since the 2008 credit crunch.

The loans will be released through the British Business Bank’s ENABLE Build Programme with the support of Homes England.

It will shortly begin guaranteeing millions of pounds in new loans for local, independent construction businesses to deliver new homes.

Local builders will be able secure loans from participating banks to help the government deliver its commitment of at least a million new homes in the next five years.

The housing secretary said: “Small house builders are vital to building the homes this country needs but too often struggle to access affordable finance.

“Today I am giving the green light to a scheme that will help to fix this.”

Since the scheme opened for applications last May, the government has received interest from specialist and mainstream lenders – including high street banks – which want to be involved in this innovative scheme to deliver homes.