House prices may be tumbling but the dream of home ownership is all but over for couples on modest incomes, as mortgage lenders demand heftier deposits, according to new figures.

Couples who have a combined take-home pay of £27,500 or less would have to save more than a year’s salaries to pay for a deposit, stamp duty and solicitors’ fees on the average first-time home – a total bill of £27,738 – figures from the Royal Institute of Chartered Surveyors (RICS) show. Couples both earning the average wage would have to set aside two thirds of their take-home pay of £44,000 to cover the bill.

Ten years ago couples on average earnings would have had to put aside only a fifth of their joint income to pay these costs.

David Stubbs, senior economist at the RICS, said that there could be worse to come for those hoping to buy a home. “The picture does not look like improving in the latter part of 2008 and first-time buyers will find their path to home ownership increasingly blocked.”

Homeowners watching the value of their homes slide also face more misery as mortgage rates continue to rise. The cost of an average two-year fixed-rate deal hit an eight-year high last month, rising by 0.37 points to 6.63 per cent in June, according to new figures from the Bank of England. A homeowner with a £250,000 mortgage switching to the new deal would have to pay nearly £700 extra each year.

About 1.5 million borrowers will come to the end of their mortgage deal this year and will have to choose a new, more expensive loan.

Mortgage lenders are refusing to offer loans to those without significant deposits as they strive to protect their margins after the credit crunch. Last year first-time buyers had their pick of deals offering to lend 100 per cent of a property’s value. Now borrowers who do not have a deposit of more than 5 per cent will struggle to secure a mortgage.

To add to borrowers’ woes, many banks and building societies are also increasing the fees for setting up a mortgage to rake in more cash. Five years ago the average arrangement fee was between £299 and £399. Now fees of more than £2,000 are not unusual. A home loan with a six-figure arrangement fee was introduced yesterday by the mortgage broker John Charcol. The two-year home loan deal has an arrangement fee of 2.75 per cent of any mortgage between £500,000 and £5 million – giving a maximum fee of £137,500.

The increasing scarcity of new buyers also threatens to drag house prices down more as sellers are forced to cut their asking prices to secure a sale. House prices have fallen by 5.3 per cent so far this year, according to recent figures from Nationwide Building Society. The price of houses being sold at auction has slumped even further.

Figures compiled for the Liberal Democrats show that the value of homes being sold under the hammer has fallen 17 per cent in the past year. Lord Oakeshott of Seagrove, Liberal Democrat Treasury spokesman, said these figures were a truer reflection of the decline in house prices. “Auctions are the sharp end of the housing market where real deals show the prices paid by real buyers. The published house price indices are well behind the game,” he said. Some economists are now forecasting that house prices will fall by more than 20 per cent by 2010.

The National Association of Estate Agents said that the Bank of England, which will announce its rate decision today, should inject more money into the credit markets in an attempt to curb the the rise in mortgage rates.

House of pain

£162,666 cost of the average first home

£27,738 average cost of deposit, stamp duty and solicitor’s fees for a first-time buyer

66% the proportion of take-home pay that a couple on average earnings would have to set aside for a year to cover the costs of buying a home

20% the proportion that they had to set aside in 1997

7.15% the average rate on a five-year fixed mortgage for a buyer with a 5 per cent deposit

Sources: RICS, Department of Communities and Local Government