House builders warn on mortgage drought

LONDON (Reuters) - House builders Barratt Developments (BDEV.L) and Redrow (RDW.L) on Thursday warned poor availability of mortgages was hampering sales, pushing shares lower in the sector.

A more positive spring selling season has buoyed the sector, lifting shares in house builders by 12 percent since the start of the year as home buyers trickle back to the market.

But despite talk of green shoots in the battered sector, where house prices have lost a fifth of their value since the downturn, the fragile market is facing challenges such as mortgage availability, low valuations by lenders and rising unemployment.

Barratt, Britain's largest house builder by volumes, said sales and prices in recent months have stabilised, echoing comments from Persimmon (PSN.L) and Taylor Wimpey (TW.L). But it warned that any sustained improvement in trading is impossible until more mortgage finance is available.

Redrow painted an even gloomier picture, warning its full-year results would be at the lower end of analyst estimates and it may need further writedowns.

"The most significant concern to the industry remains the chronic shortage of mortgage supply exacerbated by the widespread practice of down valuations by surveyors representing mortgage lenders," the company said.

Government measures to unblock the mortgage market are not yet translating into sales, said the builders.

"The policy has been set, but actually I don't think we've seen any delivery yet, there should be a wall of new money coming at some time. But we're probably kidding ourselves if we think its going to be that quick," said Barratt Chief Executive Mark Clare.

Bank of England policymakers have previously said there were some early signs its quantitative easing programme was starting to work its way through the economy. The bank maintained interest rates at a record low of 0.5 percent on Thursday, but surprised markets by not expanding the scheme.

Mortgage transactions remain at record-low levels. Approvals for house purchases reached 43,414 in May, according to the latest data from the BoE, less than half the monthly average of 95,000 seen during a boom decade when house prices tripled in price.

Hit by the global credit crunch, lenders have tightened borrowing conditions, demanding as much as 25 percent of a home's value as a deposit, hitting first-time buyers, who typically need a deposit of 30,000 pounds to 50,000 said Barratt's Clare.

PRICES RISE

But some house builders are starting to report more positive sales and volumes. Construction company and house builder Galliford Try said on Thursday its forward sales for house building were up 7 percent. Persimmon has also pointed to a higher forward order book than last year.

This is reinforced by market data. Halifax, Britain's biggest mortgage lender, said on Wednesday house prices fell only 0.5 percent in June against an annual decline of 12.5 percent, the slowest since last July. Meanwhile rival mortgage lender Nationwide said house prices rose 0.9 percent last month.

Barratt said it planned to open up to 80 new sites over the next six months in order to boost depleted stock levels that across the industry are "anorexic."

But analysts warn that both Barratt, with a 1.28 billion pound debt pile, and Redrow may need to raise further equity.

"We remain sellers of both stocks until/unless the financing picture becomes clearer," said Imran Akram, at Collins Stewart.

By 1210, shares in Barratt and Redrow were down 3.1 and 0.9 percent respectively, while Galliford Try shares were up 4.8 percent.

(Additional reporting by John Bowker; Editing by Jon Loades-Carter)