Analysis: Shares in the UK�s leading housebuilders are falling faster than a jerry-built bungalow, and City analysts say there is no end in sight to the bad news that has rocked the sector in past months.

Shares in the UK's leading housebuilders are falling faster than a jerry-built bungalow, and City analysts say there is no end in sight to the bad news that has rocked the sector in past months.

With house prices in many parts of the UK tumbling faster than at any time since the property crash in the early 1990s, the impact on housebuilders has been calamitious.

This has prompted analysts from blue-chip banks to fire off a series of devastating "sell" notes warning of hefty land price write-downs.

"We seem to be in a vicious circle of doom and gloom," said Simon Surtees, a fund manager at Gartmore Investment Management.

Since the beginning of the year, Square Milers estimate that about £8bn has been wiped off the stock market value of the leading house constructors such as Persimmon, Taylor Wimpey and Barratt Developments. Investors are braced for more heavy falls in the share value of top builders like those seen late last week when the market re-opens for business today.

The credit squeeze, which began last August, has hammered the sector and analysts are concerned that some companies are close to breaching their banking agreements.

The UK's £19bn homebuilding industry is bearing the brunt of a collapse in the US sub-prime mortgage market that has led banks and securities firms to announce record write-downs and huge credit losses. In response, lenders have reined in mortgage offers, starving potential homebuyers of money and putting an end to a decade-long housing boom.

"In the mortgage market, it's almost a famine," said Stephen Nickell, a former member of the Bank of England's Monetary Policy Committee, which sets UK base rates. "I'm very pessimistic at the moment."

Annual UK house prices fell in June by the most since the end of the country's last recession in November 1992, Britain's fourth-biggest mortgage lender Nationwide Building Society said last week. Home loan approvals in May plunged by 63% from a year earlier to the lowest since at least 1997 and consumer confidence deteriorated to the lowest level in 18 years, according to several recent economic reports.

Analysts have been warning that struggling housebuilders are set for a round of refinancings as the market continues to deteriorate.

Refinancing options include rights issues, which are seen as risky following mortgage lender Bradford & Bingley's struggle to pull one off since May, cash injections by strategic investors such as pension funds or even debt-for-equity swaps.

Taylor Wimpey, the UK's biggest housebuilder, rocked the City last week with a grim update on sales and the state of its finances. The company has yet to agree a financing package worth around £500m, and faces breaching "one or more" of its banking covenants next year if the market continued to weaken.

Housing completions were down 33% during the first six months of this year, it added, with reservations down 45%.

More than £300m was wiped off Taylor Wimpey's shares as it also confirmed 900 UK job cuts to cope with a "significant" market downturn. The firm said: "We expect that the UK housing market will remain weak at least through 2008 and we do not anticipate any recovery in the short term."

Some City analysts were shocked by Taylor Wimpey's announcement and questioned whether the group could survive. The company faces a "very real danger" of "collapse", said Dresdner Kleinwort analyst Alastair Stewart. "The statement could not be more grim." Stewart cut his recommendation on the shares to "sell" and withdrew his price target.

"The failure to raise fresh equity is a blow for both the group and the sector," Cazenove analysts said in a research note. "Trading conditions have deteriorated at an alarming rate and we will be reviewing our profit and dividend estimates across the sector."

Last Monday, Taylor Wimpey had said it expected a £660m write-down in the value of its assets, a move that analysts expect will be followed by other housebuilders.

The next test for Wimpey's existing banking covenants will be in February. That may be the point when the company falters, Dresdner's Stewart said in a note.

Other builders are in the same parlous condition as Wimpey. Dresdner said the operational and financial position of rival Barratt Developments is worse.

Barratt, the UK's worst-performing homebuilding stock this year, is believed to be trying to secure refinancing with lenders that will ease its loan conditions. The company is expected to announce the refinancing, including £400m in new debt, during a financial update on July 10.

Barratt has debts of about £1.7bn which it built up when it bought rival Wilson Bowden last year - when the housing market was at its peak. Around 1000 jobs at housebuilder Barratt Developments will go as the firm struggles to survive. The firm is in consultation with employees over the cuts in the group's 6700 staff. The elimination of jobs is part of an overhaul of the business which will see regional offices in Chester and Sheffield closed.

While the big builders struggle with debt and other problems, industry analysts said they see no relief on the horizon. There was further gloomy news for the sector from the Royal Institution for Chartered Surveyors last week. Its latest survey said that the building of new homes had fallen at the fastest pace since 1995.

Unlike in the recession of the 1990s, there is not a huge oversupply of houses. In fact, there is a shortage, owing to a rising population and a surge in prices that has put homes beyond the reach of hundreds and thousands of potential buyers, particularly in some areas of Scotland and south-east England.