House prices will fall by up to 10 per cent “at best” in the next year, according to a private government assessment laid bare by a minister’s blunder. Caroline Flint, the Housing Minister, told the Cabinet yesterday to prepare for a worsening market. “We can't know how bad it will get,” she said.

What was intended as an internal briefing was made public when Ms Flint exposed her notes inadvertently to photographers as she arrived for the meeting. They said that indicators predicted tumbling house prices. “Given present trends, they will clearly show sizeable falls in prices later this year — at best down 5-10 per cent year on year.” The notes added: “Housebuilding is stalling. 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 2008-09 is almost certain to be well down on that.”

Ms Flint admitted that she had been “caught out” but denied that her notes amounted to an official forecast of a housing crash. Nevertheless, her blunder threatens to derail the careful attempts by Alistair Darling, the Chancellor, to shore up confidence in the property market. The notes help to explain why the Government will announce a package of measures today to boost the housing market by helping first-time buyers.

Figures from the Council of Mortgage Lenders show that the number of mortgages granted in the first three months of this year fell to 142,300 — the lowest level in more than 30 years.Redrow and Galliford Try, two of Britain’s largest housebuilders, said that there had been a sharp drop in house sales during the past few weeks. Redrow also reported sharp rises in the number of buyers cancelling the purchase of a new-build homes, forfeiting reservations fees of up to £500.

The number of loans granted to buyers in March fell to 46,500, nearly 50 per cent less than in March last year, while the number of loans to those buying their first home fell to 17,800, down from 32,500 in March last year.

Ms Flint is expected to announce an extension of the shared-equity mortgage scheme, which allows key workers to have 50 per cent of their mortgage paid as a loan by the Government and an agreed lender. Someone earning £32,000, for example, could buy a home worth £200,000 and pay only £700 instead of £1,350 a month. When the home is sold, 50 per cent of the sale price goes to the Government and the lender. The scheme applies to only a small group of people and Ms Flint is likely to broaden it today.

Grant Shapps, the Shadow Housing Minister, said: “The Housing Minister was declaring 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. Worse, she doesn’t know how bad it could get.”

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