Housing market "at beginning of crash"

The housing market is at the beginning of a housing crisis, one of parliament's most respected MPs on the economy has warned.

The warning follows news from the Halifax that house prices fell 2.5 per cent last March, as the correction in UK house prices appears to gather pace.

Vince Cable, Liberal Democrat spokesman on the Treasury, said the figures confirmed the property market had been overvalued and is due a "painful correction".

Last month's drop is the largest monthly fall since 1992 and follows a 0.4 per cent fall in February and adds weight to fears the market is now under severe strain.

Mr Cable said: "The government is only just waking up to the problem, despite the fact it has been warned for years that there were great economic dangers from the bubble in the housing market, linked to exceptionally high levels of personal borrowing."

Annual growth has now slowed to 1.1 per cent, the lowest level for 12-years, while in the quarter to March prices dropped one per cent.

However, Halifax explains the drop in prices should be taken in context.

Prices have increased by around 171 per cent in the previous decade, from an average of £70,696 to £191,556. A strong market is also supporting prices.

But Mr Cable said it is now "clear" falling house prices are linked to difficulties borrowers are experiencing in servicing other debts.

"Homeowners are having to deal with increased interest payments as their fixed-term mortgages come up for renewal. Large numbers of households simply cannot afford to pay," he explained.

Mr Cable continued: "There will be an epidemic of repossessions unless the government forces mortgage lenders to moderate the process by offering shared ownership and payment holidays to keep people in their homes."

The Liberal Democrats are calling on ministers to explore how social landlords could be helped to buy up property to prevent a "fire sale" in the housing market.