Hundreds of millions of pounds were wiped off the value of all major housebuilders yesterday, with further slumps in Barratt Development shares prompting fears that it may have to take extreme action to firm up its financial foundations. Barratts suffered the heaviest falls after analysts at Dresdner said it couldn’t put a reasonable value on the business. Not only are house sales stalling, but Barratt’s purchase of Wilson Bowden last year pushed its net debt to £1.7bn. Then it went and bought a load of land at the top of the price cycle.
So how can Barratt get out of it? Unlike banks such as RBS, which are turning to massive rights issues to raise cash, Barratt’s depressing shareprice has had experts suggesting its only option is a debt-for-equity swap with a third party. On a more bricks and mortar level, Barratt has resorted to discounts and incentive schemes such as offering to pay buyers’ mortgages for a limited period. Other companies are considering chucking in freebies like kitchens too.
Elsewhere, shares in Taylor Wimpey fell 26%, and in Persimmon more than 8%. The latter is the only housebuilder in the FTSE 100, but in a graphic sign of the ills sweeping the industry, is set to drop from the list today.
All of which makes for a gloomy week for the hod-carriers. Earlier this week the surveyors’ body, the RICS, reported that house sales were at their lowest level since it began collecting data in 1978, and added that the property downturn was now likely to hit high-street spending and construction jobs. The Council of Mortgage Lenders then released figures showing that more than 20,000 people who purchased homes with 100% mortgages will already be in negative equity.
A stormy week indeed. And it’s still only Wednesday.