Cabinet papers gaffe reveals Government's UK property market fears » Central government » 24dash.com

The Government's fears over the dire state of Britain's property market were laid bare by an embarrassing gaffe today.

A secret Cabinet briefing paper showed that ministers expect house prices to slump by 5%-10% this year "at best".

It also warned starkly: "We can't know how bad it will get."

The bleak assessment - which would knock more than £20,000 off the value of an average house and leave thousands in negative equity - was unwittingly revealed by housing minister Caroline Flint as she arrived at Number 10 this morning.

Her typed speaking notes were clearly visible to photographers through a plastic folder, and reinforced the sense of gloom amid a welter of poor economic figures.

The blunder is particularly awkward for Gordon Brown as he and other senior ministers have repeatedly dismissed the danger of a property crash in public, insisting falls would be "containable".

The briefing 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%-10% year on year."

Ms Flint also expressed concerns that construction was "stalling" - indicating that the Government could struggle to hit its flagship target of building three million new homes by 2020.

"New starts are already down 10% compared to a year ago. Housebuilders are predicting further falls," she warned.

"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 document highlighted the rise in mortgage defaults, after figures last week showed that threats of repossession had hit their highest level since the early 1990s.

"We can't know how bad it will get," it went on. "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 also showed an appreciation of the political problems posed by a slump, stressing: "It is vital that at this time of uncertainty we show that we are on people's side."

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."

In a statement issued later, 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.

"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."

The Government has never released forecasts on the property market, and figures published by Ms Flint's department this morning showed house prices fell just 0.1% during the first three months of the year.

But there was grim news with the latest survey from the Royal Institution of Chartered Surveyors (RICS) revealing 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 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.

The chances of an interest rate cut to help hard-pressed homeowners also receded today, with inflation soaring to 3% - well above both the Bank of England's target and analysts' expectations.