Housebuilding companies add to housing gloom

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by Kay Murchie

Redrow and Galliford Try have warned of significant falls in sales over recent weeks, adding to the gloom in the property industry.

Redrow’s chief executive, Neil Fitzsimmons, said trading conditions were now even worse than he anticipated back in February as mortgage lending had all but dried up.

The housebuilder also said cancellation rates are on the rise with a ‘marked increase’ since the Easter period when they were running a little over 20%.

So far this year, reservations are down approximately 50%. Mr Fitzsimmons is now forecasting that legal completions for the year will be 10% lower than earlier predictions.

Following the news, Redrow shares fell 12¾p to 280p.

Earlier this month, property giant Bellway approached rival Redrow with proposals for an all-share merger worth £1.3 billion. The deal would produce the country’s second-biggest house builder in the UK.

Toscafund, the hedge fund, recently increased its stake in Redrow and Taylor Wimpey, which resulted in speculation that there are more prospects for consolidation in the medium-term.

In addition, Galliford Try said that conditions have been difficult throughout the spring selling season and added that the environment had deteriorated sharply as the availability of mortgage finance for homebuyers reduced.

Galliford Try forecast profits for the year to end of June to be no less than £60 million, compared with £60.2 million last year.

Both companies mirrored recent warnings from other housebuilding giants including Bovis Homes, Persimmon and Taylor Wimpey.

Persimmon recently confirmed that it is to stop building on new sites until market conditions improve, which could result in tens of thousands of job losses.

All the major UK property surveys have suggested that in recent months, property prices have been declining.

The news follows that from the Royal Institution of Chartered Surveyors (Rics) who have shown that the proportion of UK surveyors reporting falls in house prices has risen for the ninth consecutive month.

The Rics survey, which shows price falls more widespread than at any time since 1978, is further confirmation that the housing market slowdown is continuing.

Furthermore, according to the Council of Mortgage Lenders (CML), mortgage lending to first-time buyers and existing homeowners fell during the first 3 months of 2008 to its lowest level for 30 years.