Released this week, the Crosby Report into the state of the UK housing market predicts that net levels of new mortgage lending will fall below zero next year, down from £40bn in 2008 and £108bn in 2007, as the wholesale money markets remain firmly closed.
There is no evidence that have enticed home buyers, as lenders are not passing on the full cuts to new borrowers, and continue to tighten lending criteria. With forecast and fewer housing starts, the likely slide into negative net lending territory has prompted Alistair Darling to heed some of the report's suggestions.
In Monday's pre-budget report, Mr Darling promised to work up plans for a £100bn scheme to provide government guarantees to underwrite new mortgage lending from the banks, which could resuscitate demand for mortgage-backed bonds. But further house price falls and rising unemployment mean the housing market could still flatline despite this.
"2009 was always going to be a tough year, but if we see further big falls in volumes on top of forecast declines, that would be the bloodbath scenario," warns Panmure Gordon analyst Mark Hughes. Nevertheless, he lifted sell recommendations on indebted housebuilders and , noting that aggressive discounting is winning sales, and that the shares are "battered enough".
The prospect of a rash of housebuilder rights issues in early 2009 is looking increasingly certain, but given the huge array of competing calls from companies in other sectors, these may go down like a sack of bricks with investors, prompting fears of dilutive debt-for-equity swaps (see ).
"Do institutions want to lend money to prop up housebuilder's balance sheets, or to a company that's going to deliver a return?" asks KBC Peel Hunt real estate analyst Robin Hardy. "They're not going to use it to buy new land - it's just replacing bank debt."
Describing the £100bn proposal as "commercial debt with a government wrapper", Mr Hardy doubts that the cost of the bonds, after the banks' margin, will be low enough to encourage people to actually borrow money in the first place.
