Washington area home buyers who purchased houses in the last five years are spending nearly half their incomes on mortgage payments because rapidly rising home prices and sharply escalating interest rates have far exceeded increases in incomes.

These are the findings of a recent study conducted by the Washington area office of the U.S. Department of Housing and Urban Development, which reported that the portion of annual income spent by new home buyers has grown from 27 percent in l977 to 43 percent in 1981.

"This phenonmenon has reached significant levels for both new and existing home purchases," according to the report written by HUD economist Art Goldstein. "Clearly the ability of families and individuals to purchase a home has been seriously limited and, as a result, the number of households who can afford to purchase a home has been significantly reduced," he said.

The report does not state exactly how many buyers are paying in excess of the traditional 25 percent of their annual incomes for housing, but it indicates that it may effect more than half the new owners.

This so-called "affordability gap" was created because incomes failed to keep pace with sharp increases in prices and financing costs, according to the report.

In the metropolitan area, the average household income has increased by 45 percent -- from $22,8000 a year to $33,000 -- since 1977. But the average price of a new home has risen from $57,000 to $112,000, a 96 percent increase, and mortgage rates climbed from 8.9 percent to 13.5 percent during the same period.

That means that the average new homeowner faced a leap in monthly payments, including taxes and insurance, from $445 to $1,183, or payments totaling $14,196 a year up from $5,340 annually.

The almost unprecedented rise in housing costs has resulted in a large number of prospective buyers being forced out of the market.

"Homeownership may cease to be a reasonable expectation for many," said Goldstein in a recent interview.

"During the 1980s, the baby boom generation will be entering the age of purchase but a lot of these potential home buyers may not be able to buy because of the affordability gap," he said.

The number of buyers who applied for conventional mortgage loans and were found financially ineligible increased by 62 percent from 1979 to 1981, another indication of the affordability gap, according to the report. The "kickout" rate was highest among prospective condominium buyers, who are traditionally first-time buyers.

In 1979, 7.5 percent of all condominium buyers failed to qualify for the mortgage they wanted, and that number climbed to 16.1 percent by 1981, or a 115 percent increase.

But the lack of affordable housing is a problem not only for buyers but also sellers. "Creative financing" was the direct result of the need to bridge the widening affordability gap, said Goldstein. "Since buyers cannot afford to buy, sellers needing to sell are creating financing to make it more affordable. But even with these, still many people cannot afford to buy," he said.

Creative financing is the name given to a variety of financial arrangements by which a seller lends a buyer part of the money needed to purchase the home.

Before the startling spiral in interest rates in October 1979, buyers went to a bank or savings and loan for a 30-year fixed rate mortgage and gave the seller a lump sum payment for the full amount of the sales price.

But when the interest rates raced past 13 percent, most home buyers could no longer afford the rates charged by the financial institutions.

To make housing more affordable, sellers have become the new lenders. Instead of receiving a lump sum payment, sellers are getting only part of the sale prices in a lump sum and the rest over a period of time. Each seller and buyer negotiate their own terms for these loans, their own interest rates, amounts to be repaid and the time limit for repayments. The financing usually involves the buyer assuming the seller's existing low-interest mortgage and the seller taking back a second mortgage that the buyer will pay off in five to seven years.

Developers facing large inventories of unsold condominiums or single family houses have used some creative financing of their own, dropping their prices, subsidizing mortgage interest rates for buyers and offering large discounts to buyers with large cash down payments.

Washington and its suburbs now enjoy the dubious distinction of being the third most expensive area for housing in the nation, surpassed by only San Francisco and Los Angeles, according to the report.

New home prices in the District rose faster than prices in the surrounding suburbs because developers have built mainly for the rich since 1977, knowing the increasing interest rates had stymied the rest of the market.

In the District, the average new house cost $52,900 in 1977 and $124,400 five years later. The District's 138 percent increase was followed by Loudoun County where prices rose from $45,900 to $100,100, a 122 percent increase, and Fairfax County, where price rose from $60,400 to $124,800, a 107 percent rise.

The average price of an existing home in the metropolitan area rose from $63,900 in l977 to $94,200 in 1981.

But there is some good news. Between 1977 and 1981, new home prices had been climbing at about 20 percent a year. But as of January of this year, the rate of increase was up less than one percent over prices of the preceding year.

The moderation in prices, plus the recent lowering of interest rates by the VA and FHA, have triggered an increase in sales.

But unless rates remain around 12 percent and prices continue to moderate "people will have to back off their expectations of owning a home," said Goldstein.