Major caught in storm over homeowners

John Major was yesterday accused of blaming struggling homeowners for their own misfortune after he highlighted the "crazy" house price spiral of the late 1980s as a cause of negative equity and the consequent loss of economic confidence.

In remarks appearing to pin the current lack of the "feel-good" factor on a housing boom that was bound to burst, the Prime Minister threw the Thatcherite home-owning nostrum into confusion as he told business leaders in Lincoln the "white-collar" recession arose after people invested in housing.

Shelter, the charity for the homeless, accused Mr Major of complacency in the face of a new repossession crisis if income support help is cut in October.

Gordon Brown, the shadow Chancellor, said the comments were a direct attack on homeowners, "whom he holds responsible for taking his advice", and on Margaret Thatcher's government in which he had served as a finance minister. He added: "Mr Major should be apologising to homeowners, not blaming them for the Tories' economic mismanagement."

Mr Major told the meeting: "I recall the rather crazy situation existing towards the end of the 1980s with no immediately apparent way of stopping it. House prices went spiralling upwards and it was always likely that was going to stop at some stage. It did. But by the time it stopped an awful lot of people had committed themselves to mortgages that were a good deal bigger than ideally they should have had.

"Suddenly inflation began to take off, interest rates began to rise, mortgage rates began to rise and house prices stopped rising and fell. The negative equity trap that has done much to damage confidence began to hit us."

Shelter said laying the blame for the boom-bust housing market at the feet of homeowners was "ill-informed and thoroughly disingenuous".

Louise Casey, its director of housing services, said: "The Government must face the fact they wholeheartedly encouraged home ownership and have now left hundreds of thousands of homeowners with insurmountable mortgage arrears, facing repossession."

The Council of Mortgage Lenders disputed the veiled implication lenders caused the crisis. A spokeswoman said: "Problems most often arise because of redundancy, relationship breakdown,or because of reduced incomes when people are put on short-time working.

"By abolishing tax relief and raising interest rates the Government seemed to change the ground rules."

The episode will fuel alarm among Tories opposed to reductions in mortgage interest tax relief - which Baroness Thatcher had consistently blocked.

Malcolm Bruce, the Liberal Democrats' Treasury spokes man, accused the Prime Minister of playing a leading role in "stoking up the fires of excess and speculative fever" during his periods as Chief Secretary to the Treasury, from 1987-89, and Chancellor, from 1989-90.

Mr Major insisted yesterday that he was not going to "throw away" hard won gains. "The feel-good factor has been wrapped up in increasing competitiveness and ... in fresh jobs and 600,000 people have benefited. The prospect for continued growth with low inflation and a stable environment is extremely good."

Prices fall, page 2

News Analysis, page 17