Page last updated at 23:08 GMT, Tuesday, 3 June 2008 00:08 UK

Falling prices 'help home buyers'

Terraced houses in North London
The housing boom of recent years has priced many out of the market

Falling house prices may mean tens of thousands of young working households are able to buy a home this year for the first time, a report says.

The analysts Hometrack say a 10% fall in prices will enable a fifth of those currently priced out of the market to buy a two- or three-bedroom home.

Their report says 28% of young people in work in the UK are unable to buy even their cheapest local properties.

The situation is worst in London, followed by south-west England.

The most affordable part of the country for home buyers is the North East where only 17% of young households are priced out of home ownership.

Mortgage shortage

If, as some have predicted, prices fall by 10% or more this year, then the proportion of young working households priced out of home ownership would drop by a fifth to 22.5%, Hometrack said.

The figures are based on an analysis of the property market by Professor Steve Wilcox of York University.

However, Professor Wilcox warned that the current mortgage shortage would still be an obstacle for many would-be buyers.

"While house prices are falling, access to the property market is being increasingly limited by the costs and more restrictive terms of a substantially reduced supply of mortgage finance," he said.

Buy or rent?

According to his analysis, the cost of repaying a mortgage rose by 12% last year, which meant in turn that the cost of paying back a home loan rose to 34.5% of average incomes for first-time buyers.

That was higher than in 1990, at the peak of the house price boom at the end of the 1980s.

The relative cheapness of renting compared with buying has changed little in the last year, the report suggests.

In 2006, average rents, for a young household on average incomes, were two-thirds of the cost of buying a two- or three-bedroom home with a 100% mortgage.

Last year that ratio had moved up slightly to 68%.

The main reason for renting becoming cheaper than buying in the past few years has been the rapid growth of the buy-to-let market, which has led to nearly three million homes now being available to rent.

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