What has happened to the once-booming housebuilding sector?
Housebuilders have emerged as one of the biggest casualties of the credit crunch. Housing sales have crashed after mortgage providers raised rates and pulled their more attractive deals.
With the number of new house builds slumping by nearly 60% to 6,890 in May, housebuilders have stopped buying land and suspended building projects. Prices are now falling at the fastest rate since the housing crash in the early 90s and - with analysts predicting more falls next year - potential buyers are staying away.
Who are the worst-affected housebuilders?
After Taylor Wimpey's shock warning today that it will take months to secure a rescue package from investors and that it could breach its banking covenants next February, analysts say there is "a very real danger" that Britain's biggest housebuilder by volume could collapse. Analysts at Dresdner say its banks might be forced to rescue the company but this cannot be taken for granted.
Taylor Wimpey is burdened with £1.7bn of debt after it was created through the £5bn merger of Taylor Woodrow and Wimpey last year. It is the most indebted housebuilder alongside Barratt Developments which has similar borrowings. Barratt, also in dire need of shoreing up its finances, is in advanced discussions with its banks.
By contrast Bellway and Berkeley are seen as safer due to their financial strength.
Does this worry the government or other authorities?
The Financial Services Authority is closely monitoring the housebuilding sector as the value of the big construction firms continues to shrink.
Faced with the downturn, housing minister Caroline Flint today announced new immediate measures which form part of a wider package aimed at restoring stability in the housing market. The Housing Corporation will take up some of the slack in the sector by buying some unsold stock and using it for affordable housing. Builders will now be able to approach the Corporation at any time, rather than waiting for the quarterly bidding round.
How long could the housing slump last?
Analysts expect the slump in the housing market to continue for another two to three years. Michael Saunders at Citi predicts that by 2010 prices will be 20% lower than their peak at the end of 2007.It may turn out even worse than that, he warned.
Is it as bad as last time?
During the last housing slump in the early '90s, construction was the worst hit sector making up 17% of all business failures in 1991 , including for example Egerton Trust, the housebuilder. As now, there were fears then that the big construction groups could go bust, especially those with high borrowings. Of the big players, Barratt, Britain's biggest housebuilder in the early 1980s, nearly went bust. Chairman Sir Laurie Barratt was summoned from retirement to turn things around.
The banks took a big hit last time round and still have a large exposure to the housing market, with 38% of banks' corporate businesses exposed to property either through loans or equity stakes, according to Bank of England figures.
