Official: housing crash on the way

An Assessment that house prices will fall by up to 10 per cent this year was laid bare today by a blunder.

The secret official verdict was unwittingly disclosed when Housing Minister Caroline Flint strolled into this morning's weekly Cabinet meeting carrying an armful of documents.

Clearly visible on top of her bundle of papers was a printed briefing paper on the state of the property market which said that "at best" prices will tumble this year by five to 10 per cent. It came as inflation jumped to three per cent, way above forecasts.

Ms Flint's careless disclosure at a stroke undermined government attempts to talk up the economy and may even damage confidence in housing further. It also over-shadowed a major announcement by Alistair Darling this afternoon of compensation for people who lost out from the 10p tax band abolition, fuelling the impression that Gordon Brown's government is beset by bad luck.

Headed "Caroline Flint - speaking notes" the briefing contained a summary of what the minister told Mr Brown, Mr Darling and other Cabinet colleagues during an hour-long discussion on the economy at No 10.

A sticker on the document said "Papers for Cabinet meeting 13 May 2008". It said leading house price indicators were predicting reductions for the first time in recent years and warned starkly: "We can't know how bad it will get. Given present trends, they will clearly show sizeable falls in prices later this year - at best down five per cent to 10 per cent year on year." There was also worry that the collapse would torpedo government promises to get three million new homes built by 2020. "Housebuilding is stalling," warned the notes. "New starts are already down 10 per cent compared with a year ago. House-builders are predicting further falls."

The notes highlighted the rise in mortgage defaults, after figures last week showed that threats of repossession had hit their highest level since the early Nineties. They continued: "Underlying demand for housing remains high and the fundamentals of the economy are sound. But the market is being affected by the global credit crunch, which is making it difficult for many who would like to buy to do so.

"We can't know how bad it will get. But we need to plan now to put in place effective measures against the risk that it does get worse and to prepare for the upturn."

Ms Flint accepted she had been "caught out" but insisted her briefing note only contained information that was already public.

"These things happen, I'm not the first person to have been caught out in this way and probably won't be the last," she said.

"But the fact is this note simply reflects what external analysts have said publicly - they are not Government predictions.

"This Government is on the side of homeowners and will ensure we provide them with the maximum support we can. We have already taken action and put a comprehensive strategy in place but will continue to monitor the situation and take appropriate action where necessary.

"UK house prices are 45.5% higher than five years ago. As the note makes clear, the fundamentals of the economy are sound with high employment and low inflation but, as everyone knows, the market is being affected by the global credit crunch."

Downing Street refused to comment on the contents of the "leaked" document. Sources close to the Prime Minister played down Ms Flint's error, saying that the findings were in line with the public comments of ministers and the Prime Minister. "This is why we are so concerned and why the Government is putting so much effort into helping home-owners," said an official.

But Labour MPs were aghast at what seemed to be a major own goal that could have grave repercussions if the forecast becomes a self-fulfilling prophecy.

Shadow housing minister Grant Shapps said: "Rather than closed door briefings to Cabinet, Caroline Flint must come out in public and make a full statement about what she thinks the future might be for hard-pressed homeowners.

"Instead of dithering and complacency Brown could act today to free up the housing market by scrapping Home Information Packs and abolishing stamp duty for most first-time buyers."

There was more bad news from the housing industry today with figures showing a dramatic reduction in new home loans. New mortgage numbers almost halved in March compared with a year ago, reported the Council of Mortgage Lenders, down to 46,500 compared with 89,000 in March last year.