Lower income families face 22 years of saving for first deposit

The Squeezed Britain report, by the independent think tank Resolution Foundation, revealed that the scarcity of higher LTV mortgages has particularly hit low to middle income (LMI) families, with 52% believing they will never own a home compared to 27% of higher income households.

LMI households are those earning below the UK average: couples without children earning between £12,000 and £29,000 or couples with children earning £17,000 to £41,000.

The research showed that 67% of LMI households and 50% of higher income families have less than one month's net income held in savings.

Younger LMI families have been hit hardest in recent years, with those under 35 who own their own home falling from 51% in 2004 to just 34% in 2010. This compared to 63% of all LMI households, down from 70% ten years ago.

By comparison, 83% of all higher income households own, while 14% rent.

In addition, LMI families under 35 in private rental accommodation have leapt from 14% in the late 1980s to 28% in 2004, and 47% 2010.

In addition, with one in five of such households having signed up to 100% mortgages before the financial crisis, a quarter now spend between 25% and 50% of their income on their mortgage payments.

Meanwhile, private sector rents have increased by a third in the last ten years, leaving 18% of LMI households struggling to pay for their rent or mortgage compared to 8% of higher income families.

The Resolution Foundation report showed that household finances are being increasingly stretched, with real wages falling 4.2% over the last year, equivalent to £650. The think tank highlighted that this is before the most significant cuts to tax credits hits, with LMI households the major recipient of tax credits.

The think tank calculated that, even if income growth returns to the strong levels seen in the late 1990s and early 2000s, it will be 2020 before LMI households see their disposable income return to the levels of before the recession.

The report highlighted how costs have also escalated by comparison to the 1990s, with council tax rising 67% during the 2000s compared to 10% in the ‘90s, while household fuel costs increased 11% in the ‘90s and 110% in the 2000s.

The report's author, Matthew Whittaker, senior economist at the Resolution Foundation, said: "This latest annual snapshot of what life is really like for families on low to middle incomes shows rising pressure from pretty much all sides.

"Continued low interest rates and the start of a fall in inflation offer only limited respite. This will be far outweighed by further deep cuts to tax credits due this April, which will come as a shock on top of the continued wage squeeze."