More than a quarter of young working British households are unable to get on to the property ladder because of difficulties in finding mortgages and continued hike in house prices.

According to a new study, the worst affected areas are London and the south-west, where more than 40% of young households, aged between 21 and 40, are unable to access the housing market.
Overall, more than 28% of young working households are unable to purchase property at the lowest level in their local housing market.

The report confirms fears that young home buyers are still priced out of the market in spite of evidence of falling house prices – mostly because of the lack of available finance for first-time buyers, seen as among the more risky borrowers.

The study, compiled by Professor Steve Wilcox, of the University of York, based on data from Hometrack, defines young working households as those on incomes too high to claim housing benefit but too low to access the lowest level of the property market in their local area.

The north-east is the most affordable area, although even there 17% of young working households remain priced out of the market.

The study covers the full year in 2007, but its authors say conditions have not changed significantly since the turn of the year, given its premise of an average mortgage with a loan-to-value of 82% and a 5.7% interest rate.

The study also shows that the average mortgage costs for a first time buyer rose by 12% in 2007, with the mortgage cost to earnings ratio exceeding the previous peak in 1990 during the last sustained housing crash.

The analysis also looks at the ratio of house price to household income for first-time buyers, and again shows that London comes out worst. Nationally, there are 42 areas with a ratio in excess of 6:1, which is seen as far beyond what many banks will now lend on. The least affordable authority is Kensington & Chelsea, with a house price to household income ratio of more than 12:1.

The report says that renting is taking up some of the demand, with the cost of renting about 68% of the cost of buying a home.

Mr Wilcox said, “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 added, “Without further measures to restore the availability and accessibility of mortgage finance there is the risk of a severe downturn, with all the harmful consequences that this entails.”