Redrow writes down £259m in land values

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Redrow axed its final dividend yesterday after plunging into losses of nearly £200m and warning that the housebuilding industry could stay in the doldrums until 2010.

The chairman, Alan Bowkett, said Redrow had secured a new line of financing from bankers, which cheered the market, but warned that builders were experiencing a "trading environment in which the speed and scale of the downturn is unprecedented".

Redrow, based in Wales, has slammed on the brakes in recent months as the lack of mortgage finance has virtually brought trading activity to a standstill. It has so far shed more than 500 people, some 40 per cent of its workforce. The builder finished the year making a profit of £65m, against £121m the year before. However, after making huge write-offs of £259m against the value of its land holdings, the group ended £193.9m in the red.

The company sold 3,925 homes last year, down 19 per cent on last time, at an average price of £156,900, a drop of £3,000. However, margins suffered as the firm was forced to offer discounts and other incentives to attract buyers.

There is little reason to be cheerful about prospects. The number of homes on which the company has received firm orders is 1,189, or 45 per cent down on a year ago. The number of reservations is running at 27 a week, which works out at 0.29 for each site.

'It still remains difficult to foresee how long the reduction in activity as a result of the credit squeeze will continue, but it is our view that there may be no meaningful increase in the availability of finance in the wider mortgage market before 2010," said Mr Bowkett.

The plight facing all housebuilders was underlined by the National HouseBuilding Council, which has reported that house prices are down more than 10 per cent from their peak, while registrations of new homes in June fell 60 per cent compared with a year ago.

Nationwide Building Society said on Mondaythat it believed that house prices would continue tofall during 2009, by up to25 per cent from the peaklast year.

Taylor Woodrow, the UK's largest housebuilder, slumped to a first-half loss of £1.4bn after writing down the value of land. The market is braced for more bad news from Barratt, which reports today.

The emergency measures taken by Redrow also included cutting its land bank from 17,700 plots at June last year to 14,900 plots. The reduction in employees and other savings, including closure of two offices, will trim outgoings by around £15m a year.

Mr Bowkett said hehad also obtained a new £450m three-year debtfacility from bankers with "covenants appropriate to the prevailing trading environment".

First-time buyers fall

A shortage of generous mortgage offers and a falling property market has pushed the number of first-time buyers to its lowest level in at least five years. The Council of Mortgage Lenders (CML) said that just 17,300 first-time buyers bought a home on a mortgage during July, 48 per cent down on the same month last year. Lenders are demanding an average 15 per cent deposit, the highest since 1980, against the 10 per cent norm before the credit crunch. First-time buyers typically borrowed 3.24 times their income in July, down from 3.33 in June, the lowest multiple since July 2006. Mortgage lending for house purchase totalled £7.1bn in July, unchanged from June but 54 per cent down on the same month last year.

Sean O'Grady

Factory output drop deepens recession worries

Manufacturing is leading the economy into recession, according to the Office for National Statistics. Output fell for a fifth successive month in July, with a drop of 0.2 per cent from June. It is the longest period of falling output for seven years, with manufacturing activity down 1.4 per cent on the same three-month period last year.

Analysts concluded that manufacturing, 15 per cent of the economy, was either in recession or very close to it. Given the even more severe contraction in the construction sector and stagnation in the service sector (comprising 70 per cent of the economy), the likelihood of Britain entering a recession in the second half of this year has been marked even higher.

The weakness of sterling, which has depreciated by 12 per cent since summer 2007, has not done much to boost exports. "Weak domestic demand has combined with a loss of momentum in key export markets, particularly the eurozone and the US, to provide significant headwinds to growth," said Matthew Sharratt, an economist with the Bank of America. Some 75 per cent of British manufacturing exports go to other European Union nations and America. The National Institute for Economic and Social Research (NIESR) said yesterday that the economy as a whole shrank by 0.2 per cent in the three months ending in August, after a fall of 0.1 per cent in the three months ending in July.

Sean O'Grady and Alex Pienaar