UPDATE 2-Redrow warns housing transactions to slump further

* Says mortgage market getting worse

* Chairman calls on govt to free up supply of mortgages

* Like-for-like sales up 9 pct at 133 mln stg

* Average selling price up 16 pct to 174,000 stg

* Shares rise 3.21 percent (Adds chairman, analyst comments, share price, background)

By Lorraine Turner

LONDON, Nov 4 (Reuters) - Housing transactions could slump even lower if the government fails to take action over the contracting mortgage market, warned the chairman of Redrow (RDW.L) as sales rose since July due to a shift in product mix.

The chairman and founder of Redrow, Steve Morgan, said that the mortgage situation is deteriorating as the major banks are being squeezed to repay colossal government loans, pushing overall housing transactions even lower.

"Housing transactions, they are already at historic lows, I can see that situation hovering at the same or possibly getting worse over the next 18 months unless something is done," Morgan told Reuters.

"We've noticed in the last few months that mortgage availability has got a lot worse," he said.

"The bank of England is insistent that the banks give back the 600 billion ... this means tightening up their balance sheets and reducing lending even further," said the housing industry veteran, who also runs Wolverhampton Wanderers football club.

The dearth of mortgages stems from a lack of competition in the market, with the majority of players withdrawing in the fallout from the credit crisis and leaving just six lenders.

Underlying demand is strong for houses in the UK, particularly in the first-time buyer market, said Redrow, but very few mortgages are available, pushing up the average age of a first time buyer to 37. [ID:nLDE69Q23W]

Redrow said the lack of competition in the mortgage market is constraining growth in both the housing sector and the wider economy and called on the government to intervene by freeing up the supply of mortgages.

"You can't have a thriving economy without a healthy housing market," he said.

"Our message to the government is simple: the regulators are going too far and the medicine risks killing the patient," he added.

FAMILY HOMES

Redrow echoed comments from peer Bellway (BWY.L) that trading in the autumn season was subdued but reported like-for-like sales since the end of June rising 9 percent to 133 million pounds ($213.4 million), despite sales reservations contracting by 6 percent.

Following a boardroom coup which saw the founder of Redrow return to its helm last year, the group has shifted its focus towards traditional family homes away from one-to-two bed houses.

This has lifted the average price of private reservations by 16 percent to 174,000 pounds, slightly ahead of the company's expectations, and boosted turnover.

Nonetheless, the wider trading environment remains tough.

The eagerly-anticipated boom in sales in the crucial autumn trading period has failed to materialise.

Bellway said last month it would pull back on its full-year sales target of 10 percent growth after a more muted pick-up in activity then expected in the Autumn months. [ID:nLDE69E06R]

House prices jumped 1.8 percent in October according to mortgage lender Halifax while mortgage approvals fell to their lowest levels in seven months in September. [ID:nLDE6A30KI] [ID:nLDE69S0SQ]

Redrow's Morgan warned against reading too much into monthly price indices and said prices had been flat since the start of the year.

"Our central case remains that new build output will remain stable (at 50 percent of the normal build level) with prices edging off slightly in H2 2010 and 2011," said analysts at Panmure, which said its 'hold' rating on Redrow was unchanged.

Shares in Redrow were up 3.21 percent at 10:31GMT ($1=.6233 Pound) (Reporting by Lorraine Turner; Editing by Paul Hoskins and Jon Loades-Carter)