“This is no time for a novice,” the Prime Minister declared this week. So how does he explain the elementary mistake his Government made over the housing market?

The latest figures on house purchases reveal the full extent of government incompetence over changes to stamp duty - a measure supposed to boost the housing market instead has driven another nail into its coffin.

The problem was the schoolboy handling of the announcement of a possible stamp-duty holiday. For months ministers talked behind their hands about relief for homebuyers with no official announcement.

What did they think? That buyers would ignore the speculation and carry on buying a house regardless? Perhaps the problem was that ministers just didn't think at all. It probably seemed more important to get some good news out there as the economy deteriorated than to worry about the ramifications for sellers finally on the verge of moving.

The farce started in the summer. As house prices tumbled by around 10 per cent and would-be buyers struggled to secure loans, whispers emerged from Whitehall that the Government, keen to be seen to do something, would make changes to stamp duty. Rumours intensified. It would be a year-long break. All buyers would benefit. But still no announcement. In the meantime, thousands of first-time buyers put their plans on hold.

It took until the first week of this month for the Chancellor of the Exchequer to confirm a one-year holiday on the 1 per cent stamp duty payable on properties worth between £125,000 and £175,000 - a saving of an underwhelming £1,750.

The British Bankers' Association has now revealed the extent of the damage caused by this uncertainty. The number of home loans approved for new house purchases plummeted in August by 64 per cent, year on year, to a new low of 21,086. As it takes two to three months from a mortgage being approved to the completion of a sale, this suggests that the number of housing transactions, already at the lowest level since records began in 1977, could fall even farther. As the number of transactions falls, so do prices, as sellers have to slash their prices to attract buyers.

Retailers who sell household goods and furnishings are feeling the pain too, as are estate agents, surveyors and housebuilders. Government coffers will also suffer - the tax take from stamp duty has halved. The housing market is unlikely to recover until the credit crunch abates, but the Government has only itself to blame for exacerbating the problem.

Gráinne Gilmore is economics correspondent of The Times

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