Millions of young people and families were yesterday warned they may never be able to buy their own home.
Talking at the Council of Mortgage Lenders (CML) conference in London, Paul Smee, the new director general of the CML, said many will spend far longer renting than they imagined and that home ownership was an 'unrealistic assumption' for many people.
Mr Smee's comments were echoed by deputy governor of the Bank of England, Charlie Bean, who predicted a drop in the number of homeowners as a result of lenders stopping the handout of 'imprudently generous' mortgages which require little or no deposit.
For many people, paying a mortgage would be cheaper than renting - which is currently at an all time high, with an average of £718 a month and more than £1,000 a month in London - but they simply cannot get a loan.
Many people may now never achieve their dream of owning a home, with one expert saying renting is 'the new normal'.
Mr Smee said: "Our assumptions of a stable housing market will have to embrace all forms of tenure and not assume that stability can only come with ownership." Without this approach he says, "we may have to prepare for disappointment and the indefinite postponement of Nirvana."
Mr Smee said many people will rent for years - much longer than they imagined - and may never end up buying. Mr Bean supported this view saying there will be "a period during which first-time buyers and those hoping to move up the housing ladder save the necessary extra equity, low transactions and a fall in the share of owner-occupiers."
Official figures from a new government report reveal the one million families and young people have been forced to rent rather than buy over the past five years. It shows the number of households who are 'private renters' has dramatically increased from 2.4 million in 2005 to 3.4 million in 2009/10.
Meanwhile the CML's own figures show the number of first-time buyers has crashed from around 500,000 in 2000 to just 200,000 last year.
Matt Griffiths, from the first-time buyer campaign group Priced Out, said: 'Mortgage lenders have led us not to Nirvana, but to a housing market nightmare. Unless you have wealthy parents or are very highly paid, renting is the new normal. The ladder of home ownership is being pulled out of your reach.
'This means a new generation of families will be growing up in insecure rented accommodation. They will face the possibility of eviction at short notice – making it much harder to settle down and have stability in where your children go to school or nursery.'