House price falls 'will do little to ease affordability'

House price falls of 15% during the coming two years will do little to ease affordability problems, research has warned.

The National Housing and Planning Unit (NHPU) said affordability would not be improved if the average cost of a home dropped by 5% this year and 10% next year.

Instead the group, which was set up to advise the Government on the property market, said increasing housing supply was key. It said around 205,000 new homes a year looked set to be built in England under current plans.

But it warned that unless more homes were built, house price to earnings ratios for the 20% of people on the lowest incomes would actually deteriorate from the average home costing 7.25 times their pay in 2007 to being 8.6 times higher by 2026.

It claimed the rise would increase the size of the mortgage or deposit needed by first-time buyers by £23,000 by 2026 at today's prices.

The group warned that there were also likely to be one million fewer households forming than would have been the case if property was more affordable, as grown up children were forced to live with their parents for longer.

It added that the housing affordability issues would also put increased pressure on social housing and the private rented sector.

Last week it said between 2.96 million and 3.48 million new homes needed to be built in England by 2020 if property is to become more affordable.

The Government has set a target of building three million new homes by this date.

Professor Stephen Nickell, chairman of NHPU, said: "With affordability stretched and mortgage finance much harder to secure and more expensive, even with house prices falling the outlook for first time buyers is very difficult in the short term, and in the medium and long term the position is just as bad.