Takeovers on the cards

One City source said: “There is no middle ground at the moment for housebuilders such as Redrow, Bovis Homes and Bellway. This slowdown will see the end of those companies as independents in the next 12 months.”

The market has also been squeezed by the mergers of large players, in particular Taylor Woodrow with Wimpey and Barratt with Wilson Bowden.

Richard Kelly, head of construction and property at City analyst BDO Stoy Hayward, said: “There’s already considerable pressure in the mid-tier because of the landbank issue. This is another pressure.”

Analysts have long questioned the ability of smaller firms to survive given their difficulties in getting hold of development sites.

The speculation comes as Redrow and Bovis Homes issued profit warnings. Malcolm Harris, chief executive of Bovis Homes, denied that his firm was a merger or acquisition target.

He said “We’ve said to the City that we’re continuing to expand the business. Our objective is to drive and expand independently.”

Redrow said on Wednesday it expected completions to be down to about 2,000 homes for the six months to December 2007, compared with 2,214 in the same period in 2006, a fall of 9.7%.

It also said it could not predict sales for the whole year to June 2008 because of the uncertainty of market conditions. It refused to comment on a possible merger.

All housebuilders have been hit by large share price falls in recent months, with Taylor Wimpey’s stock market valuation more than halving since its merger.

Redrow shares have also fallen 40% in the past six months; Bovis Homes has fallen 43% in the same period.