Britain's Labor Government Panicking Over Its Mortgage Crisis

The situation is dire in the UK.

Mortgage lending is at its lowest level in 30 years.

The Labor government got thrashed in local elections.

There's no relief in sight.

Real estate prices in Britain will decline about 10% this year.

What to do?

There's no consensus.

The government seems to go from gaffe to gaffe.

Not many people like the prime minister Gordon Brown.

Here's the news from the Guardian:

House prices are expected to fall by at least 5-10% in real terms this year, the housing minister, Caroline Flint, was briefed to tell the cabinet yesterday – but she also admitted she did not know if the fall could be far worse.

With the government beset by near-daily accidents, Flint inadvertently revealed her grim forecast when she was photographed walking into Downing Street with her briefing papers visible. Close inspection revealed that her document read: "We can't tell how bad it will get." The briefing paper, which was visible to photographers through a plastic folder, also revealed that she intends to announce extra help for first time buyers today, mainly by extending shared equity schemes. The unintended disclosure is deeply embarrassing for the government since ministers have privately said that they want to do nothing to increase pessimism about house prices for fear of talking the economy into a recession. The government, as opposed to the Bank of England, does not normally make forecasts on house prices.

The paper also revealed that the government's hopes of building 3m more new homes by 2020 are under threat from a stalling housing market. The promise to build the extra homes was one of the first commitments made by Gordon Brown when he became prime minister. Flint's briefing paper stated that house prices would fall "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." That represents a big correction later this year.

According to figures published yesterday by Flint's Department of Communities and Local Government, house prices in March were still 5.2% higher than 12 months ago, but the cooling market is beginning to have an impact. In February, prices had been 6.3% up year on year.

Flint's projections will have worried cabinet ministers yesterday as they discussed the double impact of falling house prices and rapidly rising food and fuel prices, a lethal political cocktail which is damaging Brown's government.

The briefing paper also warned: "House building is also stalling. New starts are already down 10% from 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 2008-09 is almost certain to be well down on that."