Overview: Fewer first-timers is bad news for all

It would be a good start to the New Year if all those with doubts about becoming homeowners for the first time were to return from their holidays resolved to buy in 2004. On current performance, first-time buyers are becoming an endangered species, and a prolonged absence will have a significant effect on the market. How can people move on from two-bedroom flats or small terrace houses to something more spacious if there is no one clamouring to get on the ladder?

It would be a good start to the New Year if all those with doubts about becoming homeowners for the first time were to return from their holidays resolved to buy in 2004. On current performance, first-time buyers are becoming an endangered species, and a prolonged absence will have a significant effect on the market. How can people move on from two-bedroom flats or small terrace houses to something more spacious if there is no one clamouring to get on the ladder?

Already commentators are pointing to the lack of demand from first-time buyers as a key factor in the limited growth in values over the next few years. Nor is it just a matter of catching their attention - there are fewer 25- to 34-year-olds than there were 10 years ago, a pattern that will continue into the next decade.

However many charts and statistics we study, at the heart of the problem is the cost of houses. Average residential values have grown by 53 per cent in the last three years, leaving those on starting salaries floundering. Even so, the fear of being left behind seems less worrying to many than the fear of becoming overburdened with debt.

According to the Land Registry, the number of homes that can be bought with a salary of £25,000 has fallen by more than 20 per cent in the past year. Interest rates may be at a historic low, but that is of little consolation to someone who has to juggle their finances at today's prices. To be told ad nauseam how fortunate you are not to be buying when interest rates are sky-high doesn't help if most flats are more expensive. The only options are assistance from parents - who are making increasingly generous contributions - a hefty loan, or a combination of both. Even that may not be enough.

Take Susan, in her 20s and with a good job in London. A year ago she started to look for a flat in a few different areas but everything she liked was beyond her means. Then her bank stepped in with an offer of a 100 per cent loan as long as her parents acted as guarantors. Tempting, one might think, but Susan turned it down. She was worried about such a large commitment and the pressure she felt she would be under to meet the payments. Knowing that her parents would bail her out if everything went wrong wouldn't have made her feel any less responsible. And, she adds (while preparing for a skiing holiday) she could not have afforded to do any of the things she enjoys. "What would have made it worse is that the property is worth less now than when I bought it."

Susan is not alone in preferring to rent than buy. Maggie McKenna, from the Battersea office of estate agent John D Wood, has seen a significant fall-off in first-time buyers in an area that has always proved popular with them. But she says that salaries cannot support prices that have leapt from £95,000 to £200,000 and buyers need a large injection of capital. There is less stock available to first-time buyers, too. "Quite often when a couple move in together, they keep one flat for letting, which otherwise would have been put up for sale. Also the strong buy-to-let market in many places has put the first-time buyer in direct competion with the investor."

On the other hand, buyers can take comfort from the fact that prices have moved hardly at all in some places. A studio flat in Primrose Mansions, an address close to Battersea Park and which is regarded as a good barometer of the market, is for sale for £160,000 - the same price as it would have been almost two years ago.

But the rise in values has made people feel wealthier. Buying a home has not necessarily meant giving up the good life, which used to be the case, says McKenna. She, for one, would not be surprised to see first-time buyers having to make some hard choices in the future.