Read the full report from Hometrack

Nearly a quarter of first-time buyers cannot afford to buy homes because of rising house prices and higher borrowing costs.

Figures released today by Hometrack, the property data group, show that 24.3 per cent of new buyers could not afford to join the property ladder in 2006 compared to 21.9 per cent in the previous year.

The group says that renting is cheaper than buying the same property with a mortgage.

Mortgage cost as a percentage of income is 32.5 per cent, which is just below the 1990 peak of 33.8 per cent.

The average percentage of income individuals pay on rent is 20.5 per cent.

Steve Wilcox, of the University of York, the author of the report into housing affordability in the UK using Hometrack data, said: "Not too long ago there was little difference between the costs of buying and renting, but while house prices tripled in the years since 1994, private-sector rents only increased in line with earnings, and the costs of renting has, as a result, fallen relative to the costs of buying."

Those living in the South of England are worst affected by the disparity between income and rising house prices. UK interest rates have risen five times since last August.

In London, the cost of a home for a first-time buyer is five times salary and in some areas of the capital — for example, Kensington and Chelsea — this rises to as high as 9.23 times an average family's income.

Hometrack calculates that the average household income in Kensington and Chelsea is £86,236 and the average house price in the area is £795,751.

On a regional basis, 34 per cent of households in the South West are priced out of the housing market, but Scotland is the most affordable area, with only about one in six first-time buyers unable to purchase.

YesterdayHalifax and Nationwide said that British house prices were beginning to slow, as the Bank of England Monetary Policy Committee voted to hold the interest rates at 5.75 per cent.

Halifax said a monthly house price fall of 0.6 per cent was the first since December last year, when the rate declined by 0.9 per cent.

Overall, house prices in the third quarter of this year rose by 0.9 per cent, but this is compared with an increase of 3 per cent in the first three months of 2007 and 2.3 per cent in the second quarter.

Nationwide's third-quarter data revealed a 1.6 per cent rise in prices, compared with a 1.9 per cent increase in the second quarter.

However, Nationwide said that the average house price in London had broken through the £300,000 barrier in the third quarter.

Halifax said that the South of England had again experienced the biggest increase in prices.

In Greater London, house prices rose by 2.3 per cent and in the South East by 1.8 per cent.

But the lender said: "Nonetheless, the gains in Greater London and the South East were lower than in the previous few quarters, suggesting that the market is slowing in these parts of the country."

Times Recommends

• ‘Lame duck’ fear for FSA as chief quits
• Storm over bailout of EU's most ailing economy
• Northern Rock to drop 100% savings guarantee