Lunchtime news June 18



The housebuilding sector suffered another blow yesterday when Taylor Wimpey debt was downgraded to junk status. The downgrade, by credit-rating agency Fitch Ratings, comes amid an unprecedented decline in the housing market, with home sales plummeting, mortgage lending squeezed and new housing starts at their lowest in more than half a century. Fitch raised concerns that the company may be in danger of breaching its banking covenants. Most building firms agree to keep their debt at a certain percentage of their asset values, and with property prices on the slide some of the biggest housebuilders have been scrambling to refinance. Taylor Wimpey, Britain’s biggest housebuilder in terms of volume, has about £1.9 billion of debt. The Fitch downgrade potentially makes it more difficult and more expensive for the company to issue further debt. Shares in Taylor Wimpey, down 63 per cent so far this year, fell only marginally yesterday, reflecting the fact that most investors had anticipated the downgrade. The company, formed a year ago through the merger of Taylor Woodrow and Wimpey, has announced plans to close 13 offices and cut 600 jobs. It has mothballed new developments and curbed land acquisition.

Are we heading for a recession as bad as the early 1990s? There are plenty of doomsayers, but for now they are outnumbered by optimistic forecasters. Many admit it looks as though we are back to the early 1990s in terms of the housing market. After the Lawson boom of the late 1980s, house prices were either falling or broadly stable from 1989 to 1996. The price of homes relative to incomes was actually slightly higher last year than it was in 1989, so if the experiences of the 1990s were to be repeated we would have to wait to about 2014 before prices are back to the level of last autumn.

The housing market is likely to slow down even further as borrowers will soon be unable to find mortgage rates under 6 per cent, according to online mortgage adviser mform.co.uk. Even homeowners with a lot of equity and spotless borrowing records are failing to find fixed-rate loans within 1 per cent of the Bank of England base rate, currently 5 per cent. Mortgages which have managed to remain below this level are likely to charge huge arrangement fees. In some cases, that would be 3 per cent of the total value of the loan: on a typical £150,000 mortgage, £4,500. Francis Ghiloni, from mform, said: ‘Borrowers are still looking for the certainty delivered by fixed rates but we’d urge people to consider variable products such as discount rates.’