Persimmon, one of the nation's top house housebuilders, has frozen all plans for future projects and warned that new homes built in the UK this year could drop by nearly a third due to the "unprecedented" mortgage famine.
"I have been in this business for 30 years and this is the first time where there simply isn't enough mortgage availability. There isn't enough money to go around," said Mike Farley, the chief executive. Just days after the Government unveiled a historic £50bn bail-out package aimed at unglueing the stagnated mortgage market, the move will provide further evidence that the rapidly worsening housing market could make the Government's target to build three million new homes by 2020 unattainable.
"This warning from the stock market shows that there is an immediate problem and house building levels will fall further from where the Government is aiming to be," said James Rowlands, the public policy officer at the Royal Institute of Chartered Surveyors. "In the current climate these targets are looking more and more unrealistic."
Under the plan, a pet policy of the Prime Minister, Gordon Brown, the Government foresees an annual new-build rate of 240,000 homes per year.
Last year, the industry brought about 165,000 new homes on to the market. Mr Farley warned that 2008 will be much worse. "It is going in the wrong direction. We could see 110,000 or 120,000 [houses built next year]," he said.
The Government's "special liquidity scheme" unveiled earlier this week, which offers to swap banks' unwanted assets for Government bonds that can be easily converted into cash, is not enough, Mr Farley said.
Several interest rate cuts by the Bank of England have yet to filter through to lower mortgage rates. Instead, banks have been furiously yanking their most competitive mortgage offers, a startling U-turn that has seen them compete each other out of the market for all but the most solvent of buyers.
Mr Farley called on the Government yesterday to scrap stamp duty for first-time buyers to help reignite the market. That campaign has been taken up by the House Builders Federation, the industry group, which has begun talks with the Government.
Persimmon, the owner of Charles Church and Persimmon Homes, will halt work on roughly 30 sites that were set to begin construction within the next month. At about 100 homes per site, the 3,000 held up could rise quickly if the situation does not improve and could lead to a 25 per cent reduction to the 16,000 homes Persimmon built last year. Mr Farley said: "There's no point in starting new sites when people, especially first time buyers, can't find money for existing sites."
Persimmon said revenue so far this year had come in at £1.37bn, a quarter less than the £1.8bn it generated in the same period last year. Volume has plummeted by 18 per cent. The company warned of a "more challenging" market for the rest of the year.
"Over the last three weeks the unprecedented tightening in the mortgage market has caused a further deterioration of the housing market leading to lower sales volumes and increased cancellation rates," it said in a statement made in conjunction with its annual general meeting.
It blamed its drop in turnover on "an increase in discounting, marketing costs and incentives are being utilised in the market to compete for the reduced level of demand and this is having a negative impact on margins".
The bearish forecast follows a flurry of analyst downgrades of housebuilders as clouds gather over the UK housing market. Taylor Wimpey, Barratt Developments and Bovis Homes have all been hit with downgrades in recent weeks amid predictions of precipitous falls in house prices this year and next.
Mark Hake, an analyst at Merrill Lynch, slashed the rating of several companies yesterday and said house prices would drop 5 per cent in 2008 and 2009. "The key spring selling period has seen a further deterioration in the mortgage lending environment," he said.
"It is clear that the UK housebuilders are entering a new and potentially volatile period characterised by significantly constrained mortgage availability; buyers deferring purchases in anticipation of price falls; and, most recently, their growing concerns about employment security. In short, our previous macro expectations are no longer valid."