First-time buyers face rent trap under new mortgage rules

"Government policy needs to become less fixated on homeownership and urgently address the need to substantially increase rental supply and encourage long term landlords. That would create more competition among landlords and consequently improve the standards and choice of rental accommodation and reduce the pressure on rents," Mr Cook said.

The MMR will add stricter filters to the mortgage application process, including an interest rate stress test - ensuring a debtor can cope with repayments when the Bank of England's unusually low base rates start to increase - and probing questions into household expenditure such as food bills.

Since the beginning of 2008 average rents in the UK have gone up 15pc, while wages have only grown by 10pc. With landlords squeezing more rooms into existing property and couples forced to share to drive down living costs, the average London tennant spends £500 a month on rent.

The EY ITEM Club this new lender code could spell the end of interest-only mortgages for first time buyers and those who are looking to borrow high loan to value sums, which will again increase the numbers of British renters.

“Relative to average earnings, average rents are already well above their long-run average," said Martin Beck, of the EY ITEM Club. "The consequences of the MMR could exacerbate this situation, as well as putting prospective homeowners at a disadvantage in terms of competing with landlords for properties on sale."

Current rent levels give landlords a substantial premium over the cost of their mortgage, he continued. This means that more prospective first-time buyers will face the extra cost of a repayment over an interest-only mortgage, and therefore this group will have less chance of outbidding buy-to-let purchasers.

Industry commentators have also voiced concerns that the tighter conditions could prompt the emergence of a shadow mortgage market, with lenders backed by private equity firms willing to take greater risk, although any creditor can have their books scrutinised by the Financial Conduct Authority.

It is also hoped that the MMR will help to rein in runaway house prices, particularly in London, where asking prices have shot up by 18pc over the last year, according to the Office of National Statistics.

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