Emergency talks on the crisis in the housing market were launched yesterday amid growing alarm among ministers that a generation could be priced out of buying their own home.
The collapse in mortgage lending following the credit crunch and the soaring cost of deposits have come together to thwart the hopes of many first-time buyers. Combined with stagnant house prices and the lack of house building, ministers fear that the parlous state of the property market could haunt the Government over the next few years.
The problems were underlined yesterday by figures from the Council of Mortgage Lenders (CML), which showed that many first-time buyers had to put aside more than a year's pay – before tax – to afford the downpayment on a home.
The average deposit jumped from £12,700 at the beginning of 2007 to £31,500 – well over the average annual wage – by the middle of last year. In 2010, 194,600 people made their first house purchase, less than half the number just four years earlier.
The CML also forecast that the total value of property transactions will be around £135bn this year, down from £360bn at its pre-credit crunch peak. Grant Shapps, the housing minister, who summoned the talks, said yesterday that the average age of the first-time buyer without family support had reached 37.
He said there were 1.4 million households who aspired to own a home, but were unable to do so because of high house prices and problems obtaining an affordable mortgage. Calling for a "rational" housing market, Mr Shapps said: "I don't want to see the current generation completely locked out of the market. It seems to me the pendulum has swung too far the other way now. Even if you're on a very good salary, you still can't get a mortgage."
But Michael Coogan, the CML's director-general, warned there was no "magic bullet" to fix the problems in the mortgage market. He said: "It is good to see ministers taking the initiative to discuss how we can look to improve market conditions for first-time buyers. But no one will be surprised to learn there is no simple quick fix for a market that has changed fundamentally since the credit crunch."
Paul Broadhead, head of mortgage policy at the Building Societies Association, said: "Any initiatives focused purely on first-time buyers, without a sufficient increase in house building, could push prices up for entry level properties, particularly if second-time movers have low or negative equity."
Housing has been identified as a key issue for the Government to address in the second half of the five-year parliament. Oliver Letwin, the Cabinet Office Minister and David Cameron's policy chief, and Danny Alexander, the Liberal Democrat Chief Secretary to the Treasury, are drawing up a list of areas, including housing, on which the two Coalition parties will draw up a joint policy.
The aim is to address policies not covered in the Coalition Agreement struck last May and to provide fresh momentum for the Coalition after its initial reforms on education, health and welfare have been pushed through.
One Cabinet minister said: "Housing is a critically important issue. It is moving up the agenda fast. It is clear that the housing market is not functioning properly and it is something we need to address."