Exposed! Minister's fears on house price falls

The Government's private fears over the dire state of the UK property market were laid bare today.

Click here to read the notes

Housing Minister Caroline Flint warned the Cabinet that "at best" prices are set to fall by 5 to 10 per cent this year.

Related articles

• Click here to read the notes
• Housing market worst for 30 years
• Sharp increase in mortgage arrears at Northern Rock
• Click here to have your say

She also briefed colleagues that housebuilding was "stalling", adding starkly: "We can't know how bad it will get."

The bleak assessment emerged when Ms Flint carelessly exposed a sheet of typed notes to photographers as she entered Number 10 for the weekly Cabinet session.

The document, headed "Caroline Flint - speaking notes", had a sticker attached which said "Papers for Cabinet meeting 13 May 2008".

It pointed out that leading house price indicators were predicting reductions for the first time in recent years.

"Given present trends, they will clearly show sizeable falls in prices later this year - at best down 5 per cent-10 per cent year on year."

Ms Flint also expressed concerns over housebuilding - indicating that the Government could struggle to hit its target of building three million new homes by 2020.

"Housebuilding is stalling," she warned. "New starts are already down 10 per cent compared to a year ago. Housebuilders are predicting further falls.

"Having seen net additions reach roughly 200,000 in each of the last two years, the figure for 2008-9 is almost certain to be well down on that."

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 1990s.

But Ms Flint insisted that the number of actual repossessions was still only a third of that in 1991.

The notes 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."

The Government is "playing its part" to get the market moving, through the Bank of England's £50 billion liquidity injection and advice for those facing repossession orders, according to Ms Flint.

A package of measures to help hard-pressed first-time buyers will be announced tomorrow, when Prime Minister Gordon Brown sets out his draft legislative programme for the next Parliamentary session.

"But it is vital that at this time of uncertainty we show that we are on people's side," the document added.

Gordon Brown has previously dismissed fears of a house price crash, and the Government does not issue forecasts on the market.

Data published by Ms Flint's department, Communities and Local Government, this morning showed house prices fell just 0.1 per cent during the first three months of the year.

But a drop of 10 per cent would knock more than £20,000 off the value of the average house, leaving thousands in negative equity.

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 home owners.

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

The embarrassing slip-up by Ms Flint came amid more gloomy figures on the property market.

The latest survey from the Royal Institution of Chartered Surveyors (RICS) showed that 95.1 per cent more surveyors saw house prices fall than rise in April, up from 79.4 per cent in March.

Meanwhile, the Council of Mortgage Lenders (CML) said that the number of loans for house purchases plunged to 142,000 between January and the end of March - the lowest on record since the first quarter of 1975.