What goes around comes around; you reap what they sow; pick a cliché - it’s certainly all coming home to roost. As the economic situation worsens, mortgages dry up, house prices fall, and prospects loom uncertain, it seems the poor British public is about to reap a blighted harvest. Mark Cantrell reports

“Anyone who is not shocked by quantum theory has not understood a single word,” said the physicist Niels Bohr. The same might be said of economists and economies, so if the supposed experts can’t quite get to grips with their chosen field then what chance we mere mortals? For years now, the dominant viewpoint from economists and analysts, politicians and pundits, both nationally and globally, is best summed up as ‘market knows best’. Let the state maintain but a light touch, or better still hands off, and let the experts of business work their magic through the medium of the market. So far so good, especially for anyone working in the City, but after the party comes the hangover - and the headaches have seriously struck.

The first tremors came from sub-prime in the States, which quickly hopped across the Pond, triggering - or perhaps only bringing to light - a whole series of unfolding economic woes. Towards the end of last year, the free market free-for-all got its wake up call with troubled Northern Rock and its government bail-out which effectively saw it nationalised.

Since then, things have only got worse. It’s all gone horribly quantum. Well, the Titanic was built by experts and looked what happened there. For the housing world that’s a worryingly apt analogy in these troubled times, for it also lacks sufficient lifeboats - in the form of social housing - for those who might need them. Still, at least everyone seems to be aware of the iceberg even if it is rather late to do anything to avoid the perfect storm that’s whipped up in its wake.

There’s a serious squall out there when it comes to people’s spending power, not only affected by still staggeringly high house prices, but also rising fuel costs, more expensive food, and a general increase in the costs of living. Jobs are being lost and confidence is turning to jelly. The wobbly kind. Recession is looming, some commentators say, while others suggest we’re already deep in it.

So, even if the ship doesn’t sink, woe betide those who fall overboard and need one of those lifeboats or even just a simple dinghy. There are already 1.6 million people on housing waiting lists across the country and this demand is expected to rise as more and more people prove unable to service their mortgage debts and fall foul of repossession. Something needs to be done come the shrill cries, and somebody needs to be blamed.

“As people start to feel the pinch house prices are going into freefall. The years of uncontrolled and irresponsible lending by the banks are now coming home to haunt us,” said Vince Cable, the Liberal Democrat’s shadow chancellor. “With falling house prices and rising mortgage costs there is a real danger that many people could find themselves in negative equity and under serious threat of repossession. It is critical that families facing homelessness and unaffordable debts are protected. The Government must ensure repossession is only ever an extreme last resort. If no action is taken the housing market may well suffer the same massive crash that we saw under the last Tory government.”

Meanwhile, Conservative shadow chief secretary to the Treasury, Philip Hammond MP said: “Hard-pressed homeowners and would-be homebuyers are in a Catch 22 situation. Falling house prices and rising mortgage costs leave existing homeowners struggling, while the mortgage famine makes it nigh-on impossible for first-time buyers to take advantage of drops in prices.”

The Government has announced a raft of emergency measures intended to cushion the impact of the credit crunch and maintain the delivery of affordable homes, including a national clearing house set up to allow builders to approach the Housing Corporation with proposals to dispose of their unsold housing stock. The proposals have been welcomed, in a muted kind of way.

The proposals didn’t go far enough as far as the Home Builders Federation (HBF) was concerned. “We have been warning the Government for months now of the implications for the wider economy of not taking steps to address the situation in the housing market, and the consequences of a lack of action are now becoming clear,” said Stewart Baseley, the executive chairman.

The tough times have already hit the construction industry, with projects being mothballed and jobs lost. In the last few weeks, some of Britain’s biggest housebuilders have cut their workforce. Barratt has laid off 1,200 employees, following Redrow, Persimmon and Bovis who between them culled 5,000 staff from the payrolls. Inevitably, the economic ripples from those lost pay-packets will affect people beyond the redundant workers’ families.

Baseley added: “The implications for the Government’s own housebuilding targets are also clear, as it is only private builders that can deliver the much needed housing this country needs, both private and social.”

Be that as it may, clearly without the financing available to prospective homeowners to buy a property, no amount of private housing - or even shared ownership properties - will address the problems in the ailing housing market. And, given that mortgage lenders - battered and bruised that they are - are considerably less enthusiastic about lending than once was the case, there’ll be no borrowing a way through this crisis - at least not without the government significantly underwriting corporate risk.

The free market is still regarded as Emperor, but if not naked, his clothes are fast becoming threadbare - and so there have been calls for more government intervention to help set matters right. The Council for Mortgage Lenders (CML), for instance, has called for greater funding to the mortgage market to boost supply and confidence and this needs intervention from the authorities to make it happen.

“Neither the cost nor the availability of wholesale funds has improved for lenders since the Bank of England launched its special liquidity scheme, helpful though that is. This means the cost and availability to customers has not improved. This in turn means that consumers are now beginning to give up and demand is falling, with confidence in the housing market falling with it,” said Michael Coogan, director general of the CML.

“The problems currently being experienced by house builders amply illustrate the lasting damage this can inflict on the wider economy. But it is not too late to address the fundamental problem, which is a lack of funding available through wholesale mortgage funding channels.”

Connells Survey & Valuation backed the view for more intervention by the government, the Bank of England’s Monetary Policy Committee (MPC) and regulators to lubricate the workings of the mortgage market. The company’s managing director Ross Bowen, said: “With market interest rates so far above Bank base rate and continued restrictions on lending, more action is needed - and now. House prices are adjusting to lower demand. The shortage of mortgage finance available to borrowers and the confidence void is having a significant impact on transaction levels.”

Prospects for the next 12 months do not provide much scope for optimism either, according to RICS. The organisation has already noted how home ownership for low income couples (£27, 516 income after taxes) has become impossible, and that house buying has fallen to an all time low. Though falling prices now mean affordability has greatly improved for the more affluent. The market is nothing if not paradoxical, now as in the good times.

“Those who are able to access the housing market will find that a bigger deposit will mean that mortgage repayments are reduced but with real incomes stagnating this will seem like light relief only,” said David Stubbs, RICS senior economist. “Homeowners’ finances will continue to struggle with rising food and fuel costs making the burden of mortgage repayments even more difficult.”

Meanwhile, as the orchestra plays its sombre serenade up on deck, and the commentators try to second guess the future, it doesn’t take an expert to tell we humble laymen that things are far from rosy. On that note, perhaps a comment from the economist J K Galbraith makes a poignant foreclosure: “The only function of economic forecasting is to make astrology look respectable.”