Home buyers need 40pc higher deposit

The average deposit reached 43 per cent in September, up from 30 per cent in December 2006.

It is a fresh blow to first-time buyers as it equates to £70,000, based on average house prices. This is almost three times the average salary and £20,000 more than the deposit required four years ago.

However, it is not the highest average deposit since records began four years ago. Levels reached 49 per cent in December 2008 as the credit crisis began to tighten its grip.

It comes after the Bank of England warned last week that banks are becoming even stricter about who they will lend money to amid fears that higher unemployment will lead to home owners defaulting on their loans.

The latest mortgage research by surveyors e.surv also found that not all buyers are being treated equally. Those buying cheaper properties are being squeezed the most, typically needing a 35 per cent deposit compared to 25 per cent four years ago. It means they can borrow 11 per cent less than previously.

By contrast, those buying properties worth at least £500,000 can borrow just 4 per cent less.

Richard Sexton, business development director of e.surv said: “Tighter loan to value criteria have hurt everybody, but those at the bottom of the ladder have been hit disproportionately.

“One in five borrowers wants to buy a home worth less than £125,000. They are the classic first-time buyers, but they are still trailing far behind wealthier home buyers in their access to finance.

“Those financing homes in the £500,000 price bracket are only around one twentieth of buyers. For them, it’s as if the credit crunch hardly happened. This is a concern as first-time buyer participation is central to any sustained recovery in house prices.”

It comes after property experts warned declining house prices are “inevitable” after Nationwide revealed its latest house price index last week.

It reported typical values rose 0.1 per cent in September to £166,757 compared with the previous month. But this was not enough to halt the drop in annual house price growth, which slid from 3.9 per cent in August compared with the previous year to 3.1 per cent in September.

Mr Sexton added: “House prices today are almost exactly at the same level as four years ago, but the size of deposit needed has risen £20,000 to buy a typical home.

“Lenders are nervous about the state of the economy and the future direction of house prices, and their ability to fund their mortgage lending is constrained by the demands from regulators to bolster their capital reserves.

That means only the best quality borrowers are offered loans, and on much tighter criteria than before.”

Outlook for UK housing market bleak

House prices in Britain fell by 3,6% in September, the largest drop in prices since 1983 according to mortgage lender Halifax.

It says the figures show that the housing market there is rapidly losing steam after a brief recovery last year.

However, rival mortgage lender, Nationwide claimed last week that house prices actually rose by 0,1% and analysts point out that the drop in prices may just be a seasonal blip rather than a worsening trend for the property market.

Halifax says that for the three months to September house prices in Britain were down by 0,9% compared with the same period last year and points out the rate of decline is significantly slower than the quarterly changes of between 5% and 6% seen in the second half of 2008.

Mortgage approvals data supports Halifax’s views that the outlook for the property market in Britain remained bleak. The September data conflicts with the data released in August when house prices rose by 0,4% and showed an increase in the three-month annual rate of 4,6%.

Halifaxexpects the housing market to fall slowly for the rest of this year and it to continue to decline in 2011.