Builders bashed after housing subsidence

It's a rotten time to be a housebuilder. More gloomy news on the housing market has sent shares plunging...

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Last Updated: 31 Aug 2010

The latest gloomy prediction from HBOS, the UK’s biggest mortgage lender, suggests that house prices could slide by an average of 9% in 2008, with the number of transactions dropping almost by half. And given that its forecast appears to be getting worse with every passing month (back in February it was saying prices would remain flat), it might end up being even more hairy by the time the year is out.

As far as HBOS is concerned, this means it’s expecting a rise in the number of people who can’t afford their mortgage bills. It’s already seen the proportion of borrowers in arrears on their mortgage rise from 1.3% to 1.43% in the last six months, with self-certified borrowers worst affected – over 3% of them are now in arrears (and they account for nearly 15% of HBOS’s book). And there’s a very similar story over at Bradford & Bingley, according to a report in today’s FT.

Of course HBOS is not the only bank issuing dire warnings about the UK housing market – which is pretty bad news if you're a housebuilder. Yesterday various analysts laid into the sector: Goldman Sachs warned that we are ‘only at the start of a steep downturn’ and advised investors to head for the hills, while UBS and Credit Suisse also downgraded their forecasts on the big builders like Hammerson, Bellway and Taylor Wimpey. The consequence was an absolute hammering for building stocks, with shares sliding across the sector. The biggest loser was Redrow, which is apparently in more trouble than most because it’s highly leveraged – it saw 17% wiped off its share price yesterday (though it rebounded slightly this morning). It's now lost half of its value in the last six months.

Speaking of share prices, this is exactly the kind of grim news HBOS doesn’t want to be shouting about as it launches its long-awaited rights issue (particularly as it was also forced to admit shamefacedly that credit-crunch-related losses have crept over the £1bn mark). It’s currently trading above the offer price of 275p, but not by much – if these tales of woe sends it south again, investors won’t want to cough up for the new shares. Admittedly it's the underwriters that will foot the bill, not HBOS - but it wouldn't do wonders for the bank's reputation...

But not everyone's worried about the housebuilding woes: apparently housing associations are delighted, because they suddenly find themselves able to get great deals on their new projects. There's always a silver lining if you look hard enough...

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