Taxpayers will underwrite mortgages totalling hundreds of millions of pounds under plans to “unblock” the housing market and revive the flagging economy.

The Prime Minister and his deputy, Nick Clegg, will unveil proposals to help first-time buyers of new homes by carrying part of the risk of their mortgages. They also propose subsidising the construction of 16,000 homes by giving £400 million of taxpayers’ money to property developers.

In a further move, ministers are working on a scheme under which billions of pounds of money in pension funds will be used to finance the construction of power stations, wind turbines and roads.

In the foreword to the Coalition’s new housing strategy, which is published today, Mr Cameron and Mr Clegg say that Britain has been “under-building” for decades and that a “radical and unashamedly ambitious strategy” is needed to shake up the housing market.

“The housing market is one of the biggest victims of the credit crunch: lenders won’t lend, so builders can’t build and buyers can’t buy,” they say in the report.