Soaring property prices and steadily rising interest rates are locking almost a third of Gen Y out of the property market permanently, a new report has revealed.

The latest Bankwest/MFAA Home Finance Index also found that more than half of all aspiring homebuyers are abandoning their quest for homeownership because of the high level of debt they would incur. This is a 10% increase on the last survey conducted in November 2009.

"We have never seen such pessimism among prospective first-time buyers throughout the past five Indexes," said Vittoria Shortt, chief executive at Bankwest Retail. "Seventy per cent of respondents were very concerned about the level of debt they will be committed to if they buy a property."

With property prices rising by nearly 13% over the past 12 months, a combination of frozen salaries, higher interest rates, stricter lending criteria and the winding back of the first home Owners Boost is making it harder for Gen Y to break into the property market.

Results from the survey also showed a decline in respondents seeking help from families to help fund a home loan deposit, with more than 25% of prospective first homebuyers choosing to live at home while saving.

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