Young workers in Britain have been out priced in the property market, according to a new study and other reports suggest that the mortgages cost-to-earnings ratio for a first-time buyer has reached 34.5%, exceeding the previous peak in 1990 of 34.1%.

According to data from Hometrack, mortgage costs for a first-time buyer have also risen by 12% over the course of 2007.

Such affordability pressures have resulted in an increase in the size of the Intermediate Housing Market (IHM), with 28.3% of young working households currently being priced out of the lowest end of their local property market.

The figures show that the largest proportions of young working households between the ages of 21 and 40, unable to access the housing market were found to be in London (41%) and the South West (40%).

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.

Steve Wilcox further added that problems facing certain groups of homeowners could be eased by the use of mortgage guarantees.

He says: “There is a strong case for the Government to promote the selective use of mortgage guarantees.

“These would assist key workers, first-time buyers and existing households in financial difficulties as a result of being unable to refinance to escape unfavourable mortgage deals.”

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 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.

This week, brokers expressed their unhappiness at mortgage inaccessibility which means that although 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.

Mr Wilcox argues that 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.

Richard Donnell, director of research at Hometrack, explained that that house prices falls would improve such people’s chances of getting on the property ladder. He says: “Until such time as mortgage rates start to fall then lower house prices will be the only real driver of improved affordability for first-time buyers.

“Around 20% of those currently priced out of the market would be priced back in by a 10% fall in house prices - taking the proportion of households in the IHM from 28.3% to 22.5%.”