Bellway in profits warning as house prices fall again

The crisis in the housing market deepened today after mortgage lender Halifax reported a dramatic slump in prices and Bellway became the latest builder to issue a profits warning.

Halifax said the average price of a house in Britain fell 2.4% in May alone to £184,111. The slump left prices £12,525 lower than in the same month last year - an annual fall of 6.4% and the biggest drop since February 1993.

Bellway warned "there has been no sign of the normal spring selling surge" in yet another grim warning to the City from the housebuilding sector.

It came as the Bank of England met to set interest rates for June. It looked likely to leave rates unchanged at 5% despite the slowdown in the housing market and the wider economy. The Bank, led by Governor Mervyn King, is concerned about the threat of rising inflation, which is heading towards 4%.

Halifax chief economist Martin Ellis said: "The decline in prices is caused by the difficulties created for potential house purchases by the rapid rise in house prices in the last few years, a squeeze on spending power and the reduction in credit availability. These factors have curbed housing demand."

Halifax said the number of first-time buyers entering the market fell for a 17th successive month while mortgage lending was at record lows.

It has hit housebuilders hard with many now postponing development and laying off staff.

Bellway said: "The restricted mortgage supply, combined with a sapping of consumer confidence, is leading to further market weakness."

Reservations have tumbled by 31% since February and Bellway now expects to sell 10%-15% fewer homes this year than the 7,638 it sold last time around. The company had previously forecast sales to fall between 5% and 10%.

The warning was the latest in a series led by Persimmon, Britain's biggest housebuilder, and shares in the sector have tumbled since early last year. UBS and JPMorgan this week warned the downturn would continue for sometime and suggested that many housebuilders were now pondering rights issues to raise funds.

Bellway shares have crashed from 1675p in April last year to a five-year low of 594p last night. They fell another 91/2p to 5841/2p today.