The Scottish government is scrapping a flagship housing scheme designed to help buyers into affordable housing, blaming the Treasury for forcing it into deep budget cuts.

As well as hindering first time buyers looking to get on to the housing ladder, the scrapping of the scheme is likely to inflame already fraught tensions between Westminster and the devolved government in Scotland.

In a letter sent to housebuilders, seen by the Financial Times, the Scottish government said that funding cuts had “resulted in some difficult choices about how we use the allocation in 2021-22.”

In its latest spending review in November, the Treasury slashed the Scottish government’s budget for financial transactions — which are used to make loans to or investments in private sector entities, and which must ultimately be repaid to the UK government — by two-thirds, leaving it with £128m to fund a variety of schemes aimed at boosting home-ownership.

As a result of the reduction in its budget, the Edinburgh government is cutting its Help to Buy Affordable New Build scheme for 2021 and 2022. The scheme supports buyers with interest free equity loans worth up to 15 per cent of the purchase price of a newly built home. The maximum price of any home bought using the fund is £200,000.

The scheme, which started in 2013, had been due to run until March 2022, but the deadline for any buyers hoping to take advantage has now been brought forward to next week.

“This news will be an absolutely devastating blow for those members of the Scottish public who were looking to use these schemes to get on to or move up the property ladder,” said Nicola Barclay, chief executive of home building industry body Homes for Scotland.

“Coupled with the reduction in the affordable housing budget, this shock decision threatens to reverse the positive progress that has been made over recent years in addressing Scotland’s chronic undersupply of housing at a time when home has never been more important,” she added.

A separate pot of money, the First Home Fund, will be open for applications until the end of March 2022, but with a reduced budget.

Between them, the First Homes Fund and Help to Buy Affordable New Build scheme have been used by 17,500 households since it started eight years ago, according to Homes for Scotland.

The Scottish government had not provided a comment at the time of publication, but its website confirmed that it would no longer be accepting applications to the scheme from 5 February.

In the letter to builders it added that the scrapping of the scheme was “unexpected and disappointing news”.

There is no suggestion that the English version of the Help to Buy scheme, which has been used by around 300,000 home buyers since it was introduced in 2013, is under threat.