Housebuilders are coming under increasing pressure as news of restricted mortgage lending, falling house prices and fears of large land write-downs worry the sector.

After years of record profits and soaring house prices, speculation is now rife that housebuilders will be forced to raise cash with rights issues or debt for equity swaps. They could even turn to the government for help, like some of the banks have done recently.

Cityam.com – 25 June 2008

Press reports claim that a group of institutional investors are already working on plans to provide direct funding to shore up the beleaguered sector. The Telegraph says bankers at UBS have drawn up possible plans for a wide-ranging placing by major shareholders in companies including Taylor Wimpey and Barratt Development.

Brokers’ notes reinforced the downbeat mood in the sector with Goldman Sachs warning of a “deep downturn” in the property market, which it thinks could last up to three years. Goldman predicts that house prices could fall 6% this year and 8% in 2009 as sales volumes continue to drop.

“We believe the sharp contraction in mortgage availability has accelerated the house price correction and as a result, the downturn should be shorter than in the early 1990s,” Goldman analysts said in a note to clients. “However, we believe that this is highly dependant on lending banks returning to the market with competitive mortgages.”

Taylor Wimpey hit the headlines last week after the group’s debt was downgraded to ‘junk’ status by Fitch Ratings. “The rating action reflects (Taylor Wimpey’s) troubled business environment, with UK housing sales expected to persist at weakened levels during 2008 and 2009 as a result of a worsening macroeconomic environment, a severe contraction in UK mortgage lending and poorer sentiment among house buyers,” Fitch said in a statement – full article