British housebuilders are facing up to the worst conditions since the early 1990s following a wave of cash calls from some of the UK's biggest banks.
The UK housebuilding sector has been at the sharp end of the worst punishment from the credit crunch as an unprecedented mortgage famine intensifies a property market downturn.
Amid gloom over falling house prices, the stock values of some of Britain's biggest firms have slumped to nearly one-10th of last year's highs - with mounting talk that giants Taylor Wimpey and Barratt Developments could ask shareholders for a huge cash injection.
The pair carry a total of more than £2.5bn (€3.1bn) of debt, more than double their combined market worth.
A rapidly deteriorating profits outlook for the industry has seen analysts warn that both firms are likely to breach or threaten their banking covenants in the coming year, requiring a hefty rights issue to help shore up their balance sheets.
The key downward drivers have been a dramatic reduction in mortgage lending during recent months, and plunging confidence among buyers thanks to record monthly price falls.
Mortgage approval numbers fell to successive all-time lows in March and April, the Bank of England said, with the latter month's 58,000 figure nearly half the previous year's mark.
Figures from the Nationwide showed a 2.5% drop in house prices in May, with experts predicting they could fall as much as 20% by the end of next year.
UBS analyst Mark Stockdale said this week the mortgage drought helped wiped out the sector's key spring selling season. Taylor Wimpey, Barratt and the UK's biggest builder in terms of market value, Persimmon, all reported sales falls of up to a third for the first few months of this year.
However, Mr Stockdale fears this gap may have widened to as much as 50% during the past two months thanks to the mortgage drought.
"It is hard to see where the quick fix comes to the problems in the mortgage market and consequently it is clear to us that this is now a severe problem for profits in both 2008 and 2009," he said.
In an equally hard-hitting note, Cazenove building analyst Anthony Codling said: "The last two months are usually peak selling periods for housebuilders when they put hay in the barn. There has been no harvest this year and the next news we are provided on order books is likely to be very grim."
Describing the grim situation faced by bosses, he added: "We believe that managements have moved swiftly on from plan A - let volume take the strain - through plan B - try to keep volumes at a reasonable level through greater use of incentives - to plan C - paring operating costs to the bone and trying to generate some cash.
"After scorched earth, the most obvious route is to recapitalise and try to be best placed when recovery eventually comes."
Fears over the need for a rights issue have helped depress the shares of debt-laden Taylor Wimpey, the biggest operator in terms of homes built, and Barratt to nearly one tenth of their pre-credit crunch values.
Barratt is carrying around £1.7bn (€2.1bn) of net debt after its £2.2bn (€2.75bn) acquisition of Wilson Bowden last year. And Taylor Wimpey is also saddled with more than £1bn (€1.25bn) following its creation from the merger of Taylor Woodrow and George Wimpey, also carried out in 2007.
As the firm's earnings forecast has dropped, so has their interest cover - a measure of how profits compare to interest payments and a key stipulation for banking agreements.
Barratt's ratio is forecast to be 2.1 by next June - well below the minimum 3.0 thought to be required under its banking terms.
Analysts at stockbroker Davy have calculated that Barratt would have to raise more than £600m (€750m) to bring its balance sheet back to within covenant requirements.
Taylor Wimpey's interest cover is forecast to be 2.8 or 2.9 by the end of this year, leading Davy to estimate the group will have to raise £500m (€625.5m) to bring its balance sheet back to within "comfortable financial metrics".
"Although this is by no means a certainty, it highlights the risk facing the highly indebted builders if this is a long and protracted downturn," the broker said.
The UK's seven biggest builders sold around 73,000 new houses in the last year - comprising about 10% of the UK housing market.
Other options facing operators in need of more capital are a drastic cut in dividends. Mr Stockdale said whatever Taylor and Barratt decide to do with their balance sheets, he was expecting a cut of two-thirds in this year's payout from the firms. This would save them £100m (€125.1m) and £80m (€100m) respectively.
He said: "We think dividend cuts are inevitable in the current environment and are extremely logical in a cash conservation/generation strategy where the focus will be on protecting balance sheets."
Kevin Cammack, building analyst at Kaupthing Singer & Friedlander, said the likes of Persimmon, Redrow, and Bellway had stronger balance sheets but remained mired in a "bear trap" thanks to a never-ending stream of bad news.
Last month Bovis Homes warned a 30% slide in reservations so far this year would leave half-year profits "significantly lower" than expected. And Persimmon stopped work on all new projects after seeing an "unprecedented tightening" in the mortgage market.
"The share prices of these stocks have been completely captivated by the bears," he said. "We have got nothing other than a whole wave of bad news and a series of progressive downgrades."
He said the sort of sector consolidation seen in 2007 looked off the menu for the time being until there was more certainty over land values.
Last month Bellway and Redrow were the subject of speculation about a £1.3bn (€1.6bn) merger to create a firm rivalling the biggest UK housebuilder, Persimmon.
Mr Cammack said: "I don't think such a move is likely now.
"Unless somebody is doing it for shares, it is just too much of a risk to be putting down a big cash payment against land where no-one is quite sure where that's going to be."
The main driver for recovery is mortgage availability and house prices, which analysis shows have historically tracked housebuilders share values.
Industry body the Home Builders Federation this week called for a 0.5% cut in interest rates to boost demand and stave off a serious economic slowdown.
Its director of economic affairs John Stewart said: "Previous economic crises have led to housing market slumps, but this time the cart is leading the horse, with the speed and depth of the downturn threatening a serious wider economic crisis."