Blanchard Consultancy – the independent construction consultant

A UK recession could leave up to 1.3 million households in negative equity, analysts predicted yesterday. House prices will fall by 25-35 per cent from peak to trough, compared with just 12 per cent from 1990 to 1995, the Bernstein analysts said. In the "recession case" of a 35 per cent drop, 1.3 million households, or nearly 20 per cent of mortgages, would be in negative equity and banks would lose £38bn over several years, they added.

A slowdown that sees growth of 0.5 per cent next year would result in 400,000 households suffering negative equity. The effect of the far bigger than expected fall in house prices would be offset by lower loan-to-value ratios, less activity near the peak of the market, and higher repayment rates than in the last crash.

On Thursday, Halifax's parent HBOS reported property prices down 12.7 per cent in August from a year earlier. Bernstein said the UK housing market now had strong downward momentum, with mortgage approvals collapsing, estate agents unable to shift stock and industry sentiment gloomy. "With house prices down 12 per cent so far this year on the HBOS index, and significant further falls expected, the fear of negative equity is again stalking the land," the analysts wrote.

Read the full article at The Independent Online

Labels: global recession, Halifax, Housing market, HSBOS, property analysis, property prices, uk housing

Crest Nicholson, the house-builder taken private last year by HBOS and Scottish tycoon Sir Tom Hunter, has conceded that it could breach its banking covenants if the housing market continues to deteriorate.

In Crest's first set of accounts since de-listing from the stock exchange, which it filed last week, the company warned that its financial structure was highly leveraged.

'Financial forecasts, which take account of current market conditions, do not show any breaches of financial covenants,' Crest said.

'However, if the 2008 housing market proves to be significantly weaker than we expect, there is a risk that financial covenants will be breached. Contingency plans are in place to mitigate this risk.'

Although there has been speculation about the group's financial health, it is the first time it has formally stated there is a chance this could happen. The accounts also show the house-builder made a pre-tax loss of £10.1m in the 12 months to 31 October 2007. 'Finance expenses', including interest on loans, totalled £72.5m over the period.

But trading had remained strong last year, the company stated. Underlying pre-tax profits were £102.8m, up from £100m in 2006, and total housing completions rose by 11 per cent to 2,225. The average sale price was just under £198,000, down fractionally from the average of £199,000 recorded in 2006.

Article continues at Guardian Property

Labels: Crest Nicholson, Housebuilders, Housing market, HSBOS, property development, Sir Tom Hunter, Taylor Wimpey, uk housing

The high-street bank HBOS must inject about £100m of fresh cash into Crest Nicholson in the coming weeks to prevent the housebuilder from breaching banking covenants.

If HBOS, which owns 50% of Crest Nicholson, decides that it is unwilling to support the builder, its investment could be wiped out and the lending banks could step in and take control.

HBOS is also understood to be contemplating bringing in a partner to provide the funding. Hedge funds and private-equity groups are thought to be interested. HBOS has hired debt specialists at Deloitte to assist with the negotiations.

Crest Nicholson, led by chief executive Stephen Stone, was bought in 2007 at the height of the housing boom by Uberior Investments, the private-equity arm of HBOS, and West Coast Capital, the private-equity vehicle of the Scottish retail tycoon Sir Tom Hunter. Their joint venture valued the business at £715m. Hunter is the richest man in Scotland, according to the Sunday Times Rich List.

Article continues at Times Online

Labels: Crest Nicholson, Deloitte, House market, Housebuilders, HSBOS, property analysis