House prices 'must fall 63 per cent to be affordable for families'

House prices would have to fall by up to 63 per cent before families and young people on average earnings could afford to buy their first home, say researchers.

Although prices have dropped by an average of nearly 8 per cent since peaking last August, a study shows they will have to go down much more before many first-time buyers will be able to get on the property ladder.

John Ward, managing economist at the Centre for Economics and Business Research, who carried out the research, said: 'Our analysis suggest that in almost three out of four local authorities, the price of an average house remains out of reach for people on average earnings living in the area.'

The study, published today, looked at prices in every local authority area in England and Wales.

Using official figures about average local household income, researchers calculated whether first-time buyers could afford to get on the property ladder.

In the most expensive part of the country, the City of Westminster, prices would have to fall by nearly £400,000, or 63 per cent.

Seven of the ten 'least affordable' areas are in London. The others are Dorset, Cornwall and Herefordshire, which are popular with second-home owners.

However, house prices are already 'affordable' in a host of places including Bradford, Coventry, Liverpool, Swindon, Milton Keynes, Plymouth, Somerset, Birmingham, Barnsley and Lancashire.

A home was deemed ' affordable' if the interest payments on the mortgage would be 25 per cent or less of gross income.