KR Peters Director Peter Nicolls says the Federal Government's new Help to Buy Scheme should be overhauled to ensure first home buyers have more "skin in the game".

Under the scheme, which passed through parliament in late November, eligible participants only need a 2 percent deposit to enter into an equity agreement with the government taking an up to 40 per cent stake in new homes and a 30 per cent stake in established dwellings.

Income limits apply of $90,000 for singles and $120,000 for couples.

In Victoria the scheme has a price cap of $850,000 for Melbourne and other big regional centres like Geelong, Ballart and Bendigo and $650,000 in the rest of the state.

The government hopes the scheme will help 40,000 low and middle income families buy a home with houses, townhouses and units all eligible. Participants must live in the property and not currently own any land or other property in Australia or overseas.

When the property is sold the government will recoup its investment through a share of the capital gain.

Mr Nicolls is concerned the 2 percent deposit does not encourage buyers to form the long term savings discipline needed to service a mortgage over 30 years.

Instead of the Help to Buy scheme with the government contributing up to 40 percent of the cost of a property, Mr Nicolls would like to see a new scheme introduced where buyers need to save a 20 per cent deposit which then entitles them to a reduced home loan of say 2 percent  for the first 5 years.

A homebuyer would save up to $60,000 interest on a loan of $600,000 over the five year period.

"The government may need to make the banks subsidize interest rates for that period but first homebuyers should be rewarded for saving a 20 percent genuine deposit, " he said.

"It would ensure buyers have some skin in the game. A 2 per cent deposit is just not enough in my view."