The serious problems in the housing market were underlined today as official figures showed that orders for new homes by construction groups between April and May plunged 35%. Overall construction orders fell by 21 per cent.

Housebuilders have been hit hard as the seizure in the mortgage market has dampened the number of buyers, exacerbating house price falls. Some developers have even been forced to resort to threatening to sue prospective buyers who decide to abandon their purchase and forego their deposit.

One housebuilder is offering to double the deposit saved by first-time buyers in an effort to lure more buyers to the market.

The new figures follow dismal news from the influential PMI survey of the construction sector earlier this week that showed that construction activity contracted at the sharpest rate since the survey began in 1997.

Howard Archer, of Global Insight, the economic consultancy, said: "There can therefore be little doubt that the construction sector is now firmly in recession. Indeed, the construction sector looks to be in for an extended, very difficult time.

"This reinforces our belief that the overall economy is more likely than not to contract in the second half of 2008, even allowing for the fact that the construction sector's share of national output is relatively limited at some 6 per cent. "

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