Page last updated at 17:02 GMT, Tuesday, 13 May 2008 18:02 UK

Ministers' housing fears revealed

The briefing note was photographed in Downing Street

UK house prices could fall "at best" by 5-10% this year, according to secret Cabinet briefing notes accidentally revealed by a housing minister.

The notes - prepared by officials for Caroline Flint - also said: "We can't know how bad it will get."

Ms Flint, who was photographed with the notes as she entered No 10 for a Cabinet meeting, shrugged the incident off saying: "These things happen".

The notes reflected expert opinion and were not official forecasts, she added.

But they have been seized on by the opposition, with shadow housing minister Grant Shapps describing them as a sign of "incompetence at the heart of government".

He said it showed ministers were painting one housing market scenario in public "and the exact opposite scenario behind closed doors".

Caroline Flint walking with her private briefing notes

Ministers do not publicly issue forecasts on the housing market and Prime Minister Gordon Brown has previously rejected fears of a crash.

Data published by Ms Flint's department, Communities and Local Government, earlier on Tuesday showed house prices fell 0.1% during the first three months of the year.

But Ms Flint's briefing note for the Cabinet says "given present trends they will clearly show sizeable falls in prices later this year - at best down 5-10% year-on-year".

A drop of 10% would knock more than £20,000 off the value of the average house and put people at risk of being in negative equity - where the value of their house falls below the size of their mortgage.

Building 'stalling'

The document, headed "Caroline Flint - speaking notes, State of Housing Market", 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.

This government is on the side of homeowners and will ensure we provide them with the maximum support we can
Caroline Flint
Housing minister

The note also expresses concern over house building - suggesting the government could struggle to hit its target of building three million new homes by 2020.

"House building is stalling," it warns.

"New starts are already down 10% compared to a year ago. House builders 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."

Credit crunch

The notes also highlight the rise in repossessions - but stresses that the 2007 figure is "still only around a third of that in 1991".

It adds: "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 up-turn".

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
Grant Shapps
Shadow housing minister

The note adds that "we are playing our part to get the market moving with the Bank of England's £50 billion liquidity scheme" and says the government has introduced measures to help those hit by repossessions.

"I will tomorrow announce a package of measures to assist first time buyers," it goes on.

The final sentence that is visible, in bold type, says: "But it is vital that we show that at this time of uncertainty we show that we are on people's side."

'Maximum support'

Ms Flint was doing her best to shrug off any potential embarrassment caused by her accidental revelation of the briefing document to photographers as she walked in to a weekly Cabinet meeting.

"These things happen, I'm not the first person to have been caught out in this way and probably won't be the last, but the fact is this note simply reflects what external analysts have said publicly - they are not government predictions," she said.

"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."

Ms Flint's aides insisted the document had been prepared for her by officials and were not her writing.

Gloomy figures

Liberal Democrat treasury spokesman Vince Cable agreed with the assessment in the government document. "The housing market has been over-inflated and is due a correction. This seems a sensible assessment.

"However, there is a danger that with high food prices and soaring debt repayments, mass repossessions could lead to a serious housing crash of the like we saw under the last Tory government."

It comes as the latest survey from the Royal Institution of Chartered Surveyors (RICS) showed that 95.1% more surveyors saw house prices fall than rise in April, up from 79.4% 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.

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