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The Mortgage Clinic: 'Why do small flats suffer big price falls?'

'I've saved a 10 per cent deposit that finally allows me to afford a studio flat in London for about £170,000. But, with all this uncertainty about house prices, I'm wondering whether to hold off and save for a one-bed flat. I've been told by estate agents that studio flats are hit hardest by price falls. Why? That seems unfair. Please help!' JH, Weymouth

Your jitters are justified, especially as a first-time buyer. Studio and one-bed flats often bear the brunt of a housing slump by dint of simply being at the very bottom of the UK property pile.

When prices fall, first-time buyers try to see if it's possible to "trade up" to get more for their money, says Richard Morea of the mortgage broker London & Country.

"If the fall is sufficient to bring one- and two-bed flats within the range of first-time buyers, the traditional first rung of a studio flat could be bypassed – putting further downward pressure on its value."

Wary of this lower appeal to buyers, not every bank or building society is willing to lend against a studio flat – so making it harder for you to get a mortgage.

Your small deposit could also be a major issue in the current climate, warns Katie Tucker of the broker John Charcol. "If your property falls in value by more than 10 per cent, which is not unreasonable over the next two years, and you only had a 10 per cent deposit, your mortgage will be more than your property value and will create negative equity," she says.

This is risky, because if you need to move, or to sell the property, the sale price won't pay off the debt. "The larger the deposit you build up, the bigger safety-net you are buying yourself," she adds.

If you were to keep on saving for longer, there's a chance that property prices will fall as you build up a bigger deposit, says Mark Harris of the broker Savills Private Finance.

"This will then allow you to afford a larger property, but there is a big jump between the cost of a studio or one-bed flat, and a two-bed flat. So you may have to spend years saving up when you could be getting on the ladder now."

However, if property prices continue to slip while you are saving, a one-bed flat could fall into your price range quicker than you think, says Andrew Montlake of the mortgage broker Cobalt Capital, "especially if you bargain hard".

Your final decision will boil down to your personal circumstances. "Would you be happy living in a studio or one-bed flat; could you happily stay there for some years; and can you afford the mortgage? If the answer to all of these is 'yes', I would go ahead and buy anyway," adds Harris of Savills.

Send us your questions and you could receive £50 to spend at Amazon

Foxed by jargon? Worried by the credit crunch? Email a question to mortgageclinic@independent.co.uk. We will not reveal your identity, and we cannot give specific advice. If your question is printed, you'll receive a £50 voucher from Amazon.co.uk, so you can kit out your home with anything from a lawnmower to an espresso machine ( www.amazon.co.uk/homeandgarden)