Credit crunch hits first-time buyers

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The Royal Institution of Chartered Surveyors said mortgage lenders had reduced the amount they were prepared to lend, leaving first-time buyers typically needing more than 100 percent of their income to make a purchase during the final quarter of 2007.

"First-time buyers are finding it even harder to get a foothold on the housing ladder and the signs are that conditions are unlikely to get better in the short term," said RICS Senior Economist David Stubbs.

"Mortgage lenders are demanding ever higher deposits as the credit crunch continues to take effect."

Economists have long argued that affordability constraints would eventually take their toll on the overall health of the housing market as first-time buyers became increasingly priced out.

The once red-hot housing market has cooled sharply in recent months as past interest rate rises and worsening sentiment take their toll.

However, RICS said that existing home owners were finding it slightly easier to repay their mortgages in Q4 2007 - the first such improvement since early 2006 - due to steady interest rates and rising wages.

Mortgage affordability hit a 16-year low in Q3, according to RICS.

"Those who are struggling with mortgage repayments are still faced with paying a large percentage of take home pay but there may be some release of pressure as earnings continue to rise," Stubbs said.

"If the Bank of England cuts interest rates next week many will breathe a sigh of relief."

The Bank of England is expected to cut borrowing costs by 25 basis points to 5.25 percent next week as policymakers seek to shore up the economy, but there is some doubt over how far rates will fall this year given concerns about rising price pressures.