What’s the price of entry into the housing market for a first-time buyer? The answer: a deposit of at least £20,000 - which is why so few people are now buying. If you want one of the best mortgage deals on offer, you are probably looking at having to rustle up a £50,000 deposit, or even more in London and the south-east.

While Alistair Darling this week claimed his pre-budget package of support for housing would “help the homeowners of tomorrow buy their first home”, there was nothing in his speech to assist first-time buyers to overcome the substantial obstacle of stumping up a hefty deposit.

Latest Council of Mortgage Lenders figures show that the average first-time buyer is putting down a deposit of 16% of the value of the property - which equates to a whisker under £20,000 in the case of a typical £124,400 property being bought by a first-timer.

However, a review of the home loans on offer this week reveals that banks and building societies are reserving their best rates for customers with a 40% deposit. Based on the above example, that translates into £50,000: not a problem for some homeowners looking to hop on to a new mortgage deal but impossible for all but a minority of first-time buyers. That £50,000 figure is for the UK as a whole; it would be much higher in most of London and the south-east.

However, there are many who say that now is not the time for first-time buyers to be wading into the property market because house prices probably have some way further to fall. Sitting on the sidelines may be the best course of action. But some will feel they have waited long enough.

At first glance, the mortgage rates on offer at the moment do not look too bad. HSBC is offering a base-rate tracker deal - which follows the ups and downs of the Bank of England base rate - at 3.99%, while Abbey and Alliance & Leicester have two-year fixed rate deals at 4.49%. But in both cases, the maximum loan is 60% of the property’s value - which means the buyer must put down the other 40%.

“If the borrower has a 20% deposit, rates rise to 5.99% for trackers and to 6.45% for fixed rates. If the borrower only has a 10% deposit, then there are no trackers and the lowest rate for a fixed deal is 6.45%,” said Francis Ghiloni at the home loans website mform.co.uk.

The mortgage landscape has changed dramatically in recent months, and among those affected the most are those who can only manage a very small deposit, or none at all. All the remaining 100% mortgages were axed earlier this year, and there is little, if anything, available for those who have a deposit smaller than 5%.

Another problem facing first-time buyers is the greater caution of banks hit by the credit crunch about whom they take on as customers.

Meanwhile, some lenders are clamping down on low-cost “interest-only” mortgages, which many people have turned to in the past as a way of affording high property prices. With these, customers pay interest on the loan but do not pay off any of the capital debt - which means much lower monthly payments.

Earlier this year, Abbey said interest-only borrowers with “a proven repayment vehicle in place” would be able to borrow up to 75% of a property’s value, while those without evidence of a repayment vehicle would be limited to 50%.

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This financial crisis began with housing, and any hope of its ending must lie with housing

A 50% drop in mortgage lending in the past 12 months and dire predictions by the government’s mortgage tsar of a complete freeze in home loans next year prompted calls yesterday for immediate action from the chancellor Alistair Darling to assist home owners.

Data published yesterday showed home loan approvals halved in the year to the end of October. This came a day after Sir James Crosby warned that net lending would fall below zero next year in his report published alongside the chancellor’s pre-budget report on Monday.

Data from the British Bankers Association showed lending had fallen in October to its second lowest level since records began in April 1997. The record low was in August when only 21,363 new loans were approved. The figure rebounded slightly in September but dropped to 21,584 in October. Mortgage lending is down by two thirds from its July 2007 peak - the month before the credit crunch started.

Net lending - which strips out loans repaid from new ones granted - was £2.9bn in October, the second lowest figure since April 2001.

Crosby, the former chief executive of HBOS, predicts net lending will fall below zero next year - indicating that more loans will be paid off than new ones granted. He used the drought in mortgage lending to support his recommendation that the government uses £100bn of taxpayers’ money to guarantee the moribund market for mortgage-backed securities.

These bonds package up mortgages that are sold on to investors. They provided £200bn of finance for banks last year, before the credit crunch paralysed this wholesale market for funding.

Darling has promised to work on a detailed scheme to adopt the Crosby guarantees that could be sent to the EU for state aid approval in time for next year’s March budget. Treasury sources indicated Darling was trying to present a package to the EU before Christmas and lenders urged Darling to move quickly.

Buy-to-let lender Paragon’s chief executive Nigel Terrington described Crosby’s recommendation as “the single most important measure” unveiled by Darling.

A spokeswoman from the Council of Mortgage Lenders described Crosby’s predictions as “entirely plausible”. The CML will publish its own predictions for the 2009 mortgage market next week. It had previously warned that it expected the mortgage market to halve this year.

The CML, which lobbied Crosby to take action on the mortgage market, said: “The sign of relief at the CML is that the government is going to accept Crosby.” But she urged the government to act before next March’s budget as the report illustrated the severity of the funding squeeze.

Without a revitalisation of the wholesale market, Crosby warned that mortgages could be scarce next year. Crosby raised the problems faced by lenders in refinancing their existing funding in the wholesale market, where he estimates £160bn of mortgage-backed bonds have to be refinanced over the next three years. This suggests lenders will struggle to maintain past levels of lending before even beginning to offer new loans.

Crosby noted that the lack of mortgage finance has implications that go beyond homeowners. It is having an “immediate and severe impact on house builders”.

But he said the “real risk” is that the market “overshoots on the downside” as house prices fall too fast. “Such a downward spiral would have serious consequences across all segments of the housing market and across all industries dependent on housing activity,” he said.

He believes the impact will also be felt by the more vulnerable members of society. “The effect would be felt most acutely in the overall number of housing starts and more specifically in lower-priced housing in the least expensive localities,” said Crosby.

His recommendation for a guarantee of mortgage-backed bonds yesterday prompted the Treasury to embark on a “quick review” of guarantees it is already offering for banks to issue bonds to try to kick-start lending between the banks.

This credit guarantee scheme was part of the £500bn bank bail-out announced in October and the government expects £100bn of bonds with its guarantee to have been issued by the end of the year. The review will be completed by Christmas.

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