From April 30, Abbey will offer just one 95 per cent deal, a five-year fixed-rate mortgage at a rate of 6.99 per cent. And, as of May 1, Nationwide will offer its 95 per cent mortgage deals only to existing customers, or to those applying for a three-year fixed-rate deal.

And first-time buyers will not be the only casualties of the increasingly tight mortgage lending conditions. Those looking for a new mortgage deal as their current deal draws to a close may find themselves squeezed out of the market as they do not have enough equity in their home. This means they could be refused remortgage deals altogether, or could end up paying through the nose for a new deal.

Sean Gardner of MoneyExpert.com said: “The biggest struggle now is not being able to afford a mortgage – it’s being able to get one. Availability is the biggest hurdle despite all the Government efforts to get lenders lending.

“If you’ve not got a substantial deposit nowadays or equity in your house then your choices are now severely limited. On average if you are remortgaging you now need a deposit of 15.5 per cent if you take out a fixed or variable mortgage.”

Furthermore, Nationwide has cut its maximum standard variable rate loan size in half to £500,000 for new borrowers who do not have a deposit of 25 per cent or more. Experts are concerned that other mortgage lenders will take similar action, seriously limiting the loan amount available to new customers.

“First time buyers and people renegotiating their mortgage for the first time will be worst affected. When disposable income is already at breaking point for many, it is frankly impossible to see how those with limited savings will find a way to get a foothold on the property ladder,” adds Mr Gardner.

According to Fool.co.uk, homeowners who bought their home before spring 2004 are in the best situation when it comes to mortgages. It claims that a 20 per cent drop in house prices will bring the average UK house price down to spring 2004 levels; therefore, those that bought their property after this time will have made a capital loss, although this does not necessarily result in negative equity.

Head of personal finance at Fool.co.uk, David Kuo, said: “It is vital to differentiate between capital loss and negative equity. While a capital loss is beyond the control of homeowners, mortgage borrowers can overcome negative equity by reducing the size of their outstanding mortgage compared to the value of the property.

“It is also important to appreciate that falling house prices are not disastrous, even for many existing homeowners. A 20 per cent fall in house prices across the board will narrow the gap between the value of your home and a property further up the housing ladder. It will make up-sizing more affordable.”

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