First-timers are deep in debt even before they buy a home

Nearly half of first-time buyers owe at least £8,000 by the time they start looking for a property, according to a new report from one of the UK's biggest mortgage lenders published today.

The research from Bradford & Bingley reveals that many first-time buyers are already deep in debt by the time they start house-hunting, with 43 per cent admitting they have thought about giving up buying altogether.

Their debts are most likely to be on credit cards and student loans, with one in 10 putting themselves in further debt by furnishing their new homes. According to the report, debt levels are also having an effect on the amount that first-time buyers are willing to borrow. The number asking for five times their income has halved over the past year, as young buyers have been forced to set aside more of their income to cover existing debts.

Duncan Pownall, Bradford & Bingley's mortgage development manager, said: "When it comes to choosing their mortgage, it seems first-time buyers are becoming less inclined to stretch themselves.

"The most popular choice is to borrow the traditional three-and-a-half times their income, but banks and building societies now offer a much wider range of products."

The report also revealed a 10 per cent increase in the number of interest-only mortgages being taken out over the past year.

"Their popularity might be because buyers have existing debts and are attracted by the potentially lower mortgage payments that this style of mortgage can offer," Pownall added.

He warned, however, that buyers should be aware of the risks that are involved with investment-backed and pure interest-only borrowing.

Of those first-time buyers who have successfully managed to buy a property over the past year, 53 per cent have opted for a fixed-rate mortgage in an attempt to control their outgoings. This is up from 34 per cent a year ago.

Around a quarter of first-time buyers did not put down a deposit, up slightly on last year.

Getting a foot on the housing ladder looks likely to get harder still over the coming months, with the latest statistics suggesting house prices are on the rise again.

Figures from the British Bankers' Association last week revealed that net mortgage lending leapt by almost £5.5bn in March - well up on February.