NEW LOW IN FIRST TIME HOUSE BUYERS

The average cost of a home dropped to £211,410 during the month, driven down by a 5.1% fall in the value of flats and a 3% slide in the cost of terrace houses, according to Communities and Local Government.

The figures came as the Council of Mortgage Lenders (CML) said just 15,600 people bought their first home during the month, the lowest level since it began to collect data in 2002 and less than half the 34,800 who bought a property in August last year.

The drop was accompanied by a further tightening in lending criteria, with first-time buyers now putting down average deposits of 16%, the highest level recorded by the CML, and borrowing just 3.18 times their income - the lowest multiple since March 2006.

Across all buyers, a total of just 42,200 mortgages worth £6 billion were advanced for house purchase during August, both new record lows. Gross lending for the month, which includes all types of mortgages, totalled £19.7 billion, a 20% fall compared with July's figure and 42% below the sum advanced in August 2007. It was also the lowest monthly level since February 2005.

The mortgage squeeze is continuing to have an impact on the housing market, with estate agents now struggling to sell even one property a week. The Royal Institution of Chartered Surveyors said its members had sold an average of just 11.5 homes during the three months to the end of September, the lowest level since its survey first began in 1978.

At the same time, the number of surveyors reporting house price falls during September also increased for the first time since April. Overall, 84.2% more chartered surveyors reported seeing further price slides during the month compared with those who saw price rises, up on the figure of 81.8% more who reported falls in August.

Figures from CLG showed that house prices lost 3.4% of their value during the year to the end of August, after the annual rate of house price inflation fell for the 10th month in a row. The fall is far less severe than the drop of 12.4% recorded by both Halifax and Nationwide for the year to the end of September, but the CLG figures tend to lag other indexes, and further steep falls are expected in the months ahead.

Meanwhile, an economist told MPs that house prices could fall by a further 5% to 10% before the bottom of the market was reached.

Appearing before the Treasury Select Committee, David Miles, Professor of Finance at Imperial College London, said further falls of this level, which would leave homes around 20% cheaper than they were at their peak, could mean the housing market would stabilise.