The number of new housing starts in the first quarter of 2008 fell by nearly 25 per cent compared to last year as the rising cost of mortgages and falling house prices took their toll on the British construction industry.

The Department of Communities and Local Government today said the number of new house builds fell by 24.4 per cent to 32,144 in January to March on the first quarter last year, and shrank by 21.5 per cent compared to the final three months of 2007.

The figures also revealed that housing completions in the first quarter fell by 18.4 per cent compared to 2008, and by 12.3 per cent on the final three months of 2007.

Earlier this week, the Council of Mortgage Lenders released data showing that the number of new mortgages borrowed by first-time buyers and existing homeowners fell to the lowest level in more than three decades, declining to 142,000 - the lowest since 1975 and below the 146,000 recorded in 1992 at the height of the last recession.

Also, the Government inadvertently revealed that UK house prices will fall by up to 10 per cent "at best" this year, when Caroline Flint, the Housing Minister, accidently allowed internal briefing notes to be photographed on her way into a Cabinet meeting.

Howard Archer, chief UK and European economist at Global Insight, said: "The sharp slump in housing starts in the first quarter reflects housebuilders' deep concern about the outlook for the sector, as activity and prices buckle under the toxic combination of elevated affordability pressures and very tight lending conditions.

"Furthermore, the situation is likely to deteriorate further as the housebuilding index in the April purchasing managers survey for the construction industry indicated that housebuilding activity contracted for a fifth successive month and at the sharpest rate in the survey's history."

This week, Barratt Developments, Britain's second largest house builder, warned on profits after reservations for its new homes fell by half and an increasing number of buyers pulled out of purchases.

The value of Barratt's book of forward orders, which includes reservations and exchanges on house purchases, fell by 26 per cent on the £2.1 billion booked this time last year.

Last month, Persimmon, Britain's biggest housebuilder, said it would stop building homes on new sites until mortgage conditions improve after revealing that sales from January to March had fallen by 24 per cent.

Rival housebuilders have also disclosed falling order numbers. Taylor Wimpey recently admitted that its forward order book had fallen by 26 per cent, and Redrow reported a 34.5 per cent fall in first-half profits and gave warning of worse to come.

The Government is attempting to boost the housing market and this week announced that all first-time buyers earning less than £60,000 a year are now eligible for the Government’s shared ownership and shared equity schemes.

Prime Minister Gordon Brown also said £200 million would go towards buying new properties either for first time buyers to purchase through the HomeBuy scheme or for social rent.

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