Taylor Wimpey extends debt negotiations but remains pessimistic on UK housing recovery

The house builder said in its interim management statement this morning that it was in compliance with all of its existing covenants and has adequate facilities with its net debt at around £1.9bn.

It said its ongoing negotiations with its bankers and private placement noteholders are progressing and the ‘objective of these discussions remains the achievement of a revised covenant package that is robust and delivers a stable medium term financing solution for the group, taking into account the requirements of all relevant stakeholders’.

‘While these discussions remain our top priority, the board also considers it appropriate for the group to keep under review other strategic options which may be available to it to reduce debt,’ it said.

It said conditions in the UK housing market remained ‘’extremely challenging’ and that in the short term it remained focused on cash management and cost reduction.

Taylor Wimpey has already reduced its UK headcount by nearly 1,900 posts as part of its previously announced restructuring of the business. It has also reduced the expected cash outflow for land purchases by a further £75m to the end of 2009.

‘The absence of any improvement to current market conditions increases the likelihood that the group will need to make further provisions against its land and work in progress,’ it said.

‘We remain of the view that there will not be a recovery in the UK housing market in the short term. We welcome the significant interest rate reduction announced last week, and are hopeful that if this is passed on to consumers, then it will help the market to return to stability more quickly. Increased mortgage availability and a return of customer confidence remain the key requirements for a sustained market recovery,’ it said.

Taylor Wimpey said mortgage approvals during the third quarter of this year fell by 70% year on year and the main mortgage lender house price indices have now fallen by around 14% during the last year.

It said there was increasing downward pressure on pricing and challenging volumes and its build rate was now running below its current sales rate which is around 40% of its normal outlet. It said it remained cautious on opening new outlets.

The company’s current order book stands at 6,607 homes compared to the same time last year when its order book stood at 11,074 homes. It has also reduced the level of unsold completed homes by around 35% since the half year to around 1,300 homes.

Affordable housing will account for around 22% of its full year completions, compared to a total of 15% last year.

Its North American business has also been hit by the downturn but it said it expected ‘positive cash generation and a modest profit in North America for the full year’.

However, the housing market in Spain remains weak and Taylor Wimpey said its plans to exit the Gibraltar’s housing market remain on track.