Gaffe reveals ministers' fears of housing slump

Local & National

Wednesday, May 14, 2008

By Ben Russell

House prices are set to fall by 5 to 10 per cent "at best" this year – but ministers have no idea how badly the market could slump, according to confidential cabinet documents accidentally revealed by the Housing minister, Caroline Flint.

Ms Flint unwittingly left the sheaf of papers on show as she left yesterday morning's meeting of the Cabinet in Downing Street, enabling onlookers to read their inflammatory contents.

"Given present trends they will clearly show sizeable falls in prices later this year – at best down 5-10 per cent year-on-year," warned the documents, headed "Caroline Flint, speaking notes". "Underlying demand for housing remains high and the fundamentals of the economy remain sound," they continued. "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 gaffe came as figures from the Council of Mortgage Lenders showed the number of loans for house purchases has plunged to the lowest on record since the first quarter of 1975.

Ms Flint was forced to issue a statement saying that the predictions were based on the public pronouncements of analysts and insisting that the full document made it clear that the fundamentals of the British economy were "sound".

But opposition MPs said the slip-up had exposed the Government's true fears about the state of the housing market. Nick Clegg, the Liberal Democrat leader, said: "It's taken an inadvertent slip from the Housing minister to reveal what the Government is really thinking. We now know that the Government believes house prices could drop by more than a 10th, with negative equity beckoning for families across the UK.

"The Housing minister might be content that repossessions last year are lower than the early 1990s but Shelter is predicting that they will rise to 53,000 this year – just a fraction below the 1993 figure. There can be no room for complacency. Ministers have to get to grips with this now and take action to ensure that homes are only repossessed as a last resort."

Grant Shapps, the Tory housing spokesman, said: "The Housing minister was declaring in public that the housing market was strong just last week while today we find she has been briefing the Cabinet in private that it will fall by at least 5-10 per cent."

Ms Flint said: "The fact is this note simply reflects what external analysts have said publicly – they are not Government predictions."