The housing market is booming and first time buyers are struggling to get a foot on the property ladder. Prices are rising by as much as 25% a year in some hot spots, such as London, which makes buying a first home a daunting proposition.

Most experts predict that house prices will continue to rise over the next year, although not at the levels we have seen recently. At the same time, experts are warning that the market could be in danger of overheating.

In a soaring market, the gap between house prices and average wages is stretched. If it becomes too wide, people can not afford to buy and the market could collapse. It was the inability of first time buyers to pay any more for properties that sparked the last housing crash when prices fell by as much as 40% in the early 1990s. Many people who bought properties at the height of the 1980s property boom were saddled with negative equity.

Today’s housing boom is characterised by a ripple effect – increases have started at the top end but are now getting through to the lower end of the market, making life even harder for many first time buyers. Most banks and building societies will lend three and a half times your salary – or two and three quarters your joint salary (usually three and a quarter times a single salary for 100% loans), but the risks of default are high if the market or your circumstances change. The Financial Services Authority, the City watchdog, has warned lenders to be more prudent.

Once you have found your property, it is important to shop around for the best mortgage deal or get a broker to do the leg-work for you. A straightforward repayment mortgage is usually the best option so resist the hard sell on endowments. You can choose from a standard variable rate, base rate tracker, a discount, fixed or capped loan, or perhaps a cashback.

With a fixed loan, your mortgage payments remain the same for an agreed term, usually two, three or five years. With a capped mortgage your interst payments will go up and down with the base rate but will never rise above a pre-set limit. All borrowers should be aware of any extended redemption penalties that lock you into a variable rate for several years after the special deal has expired.

Most mortgages aimed at first-time buyers allow you to pay only a small deposit, sometimes as little as 3% of the property value. Some lenders also offer a no-deposit 100% mortgage.

The attraction of a 100% mortgage for first-time buyers is obvious. Young people may find it hard to save up for a deposit, as well as for moving expenses, such as furniture and solicitor’s fees. However, there are extra costs over a standard 95% or 97% mortgage.

If you are financially disciplined, you can perhaps consider a 100% mortgage, but you could be in negative equity from day one. Remember that a mortgage is no more than a loan, a debt and you must pay it back. Life cover and mortgage payment protection are essential.