House builders buoyed by talk of city rescue

• Increase image
• View all images

The UK's major housebuilders began a stock market fightback today amid speculation of a City bail-out for the battered sector.

Weekend reports of a funding move to put their finances on a firmer footing, organised by investment bank UBS, sent shares higher. Barratt Developments - whose stock slumped 39 per cent last week - gained more than 14 per cent in the FTSE 250 Index.

Charles Church builder Persimmon, which is due to be relegated from the FTSE 100 Index, picked up 5 per cent after shedding 8 per cent over the previous week.

The advances were accompanied by significant gains for other builders including Taylor Wimpey - up 9 per cent - as well as Redrow, Bovis Homes and Bellway.

The mini-revival came after major investors were said to be ready to fund housebuilders directly to spare struggling firms the added pressure of having to call on shareholders to support rights issues.

UBS, said by the Sunday Telegraph to be organising the move, declined to comment.

Housebuilders have come under heavy pressure after a mortgage squeeze from lenders hit by the credit crunch. Falling house prices and wider economic uncertainty are also causing would-be buyers to sit on their hands.

Despite today's revival, Panmure Gordon analyst Andy Brown said it was "a little bit too early" to get back into the sector, due to the poor fundamentals of falling prices and the negative sentiment currently surrounding the industry.

Many firms in the sector have been targeted heavily by "short-sellers" - investors hoping to profit from falls in share prices - as prospects for housebuilders darken.

Barratt Developments, which bought rival Wilson Bowden for £2.2 billion last year at the top of the market, is seen as particularly vulnerable to the downturn due to its high levels of borrowing.

The group expects net debts of £1.7 billion at the end of the month, but Barratt's market value is currently around £330 million - less than a tenth of its record high in February last year.

One analyst last week told clients not to buy the company's shares "at any price", while chief executive Mark Clare said "grown-up discussions" were taking place with bankers about what could happen if the housing market worsened in the coming months.