Redrow, the Midlands-based housebuilder, became the first high-profile victim of the falling housing market as it reported a 34.5 per cent fall in first-half profits and gave warning of worse to come.

Delivering an £18.9 million drop in pre-tax profits to £35.8 million, Alan Bowkett, chairman of Redrow, said today that "2008 will present a more difficult trading environment than the industry has experienced for many years with lower levels of confidence in the housing market."

Redrow's sold 2,111 homes for its first half ending 31 December, 103 fewer than than the same period the year before. Revenue fell £34.6 million to £353.1 million. That rate of decline is expected to continue in the early part of 2008.

Visitor levels to Redrow's sites so far in 2008 are some 18 per cent lower on average per week compared to levels enjoyed this time last year.

In January the company guided the City to expect Redrow to have sold 4,350 homes in total for its year to the end of June. Today however, Neil Fitzsimmons, chief executive, cut back that guidance to 4,200 - meaning volumes will end up about 10 per cent lower than those achieved in 2006.

Redrow's margins also came under pressure, down 2 per cent to 14.3 per cent as the company paid the price from having to sell homes at "competitive prices" often built on land bought recently when prices were high.

Redrow was among the first housebuilders to ratchet up its dividend payments five years ago and has increased its pay-outs 20 per cent each year since but today there was less certainty that pace of increase would continue into 2009.

Mr Fitzimmons confirmed the full year payout would be up 20 per cent. He added: "the board will review dividend when we have better clarity of where the housing market is going forward, which we will hopefully have by Spring of next year."

The interim dividend was today increased by 19 per cent to 9.3p, meaning the payout is only 1.7 times covered.

Barratt Developments and Persimmon, respectively Britain's first and second largest builders, injected a bit of relief into the housing market this week after they reported a recovery in both visitor numbers and reservations in the early part of this year compared with the autumn. Both companies managed to increase profits over the past year, although Barratt's performance was helped by its takeover of Wilson Bowden.

Visitor numbers at both Barratt and Persimmon for the first seven weeks of 2008 are however still some 13 per cent down on early 2007.

Mr Fitzsimmons said "If you look at the levels of mortgage approvals, construction starts and what the Royal Institution of Chartered Surveyors is saying about the second handing housing market, I am being more cautious about the prospects than others."

Redrow has slowed down the pace of building on some of its new sites open for business, Mr Fitzsimmons added, while the company has delayed opening a couple of small sites earmarked for 40 to 50 flats in the north-west of England.

The company is sitting on land with room for 25,750 new homes, worth about 3.3 years of supply. Property pundits have tipped Redrow as a takeover target if it struggles to deal with a slowing housing market.

Mr Fitzsimmons said: "We remain focused on our business and doing what is right here with the management team having regard to shareholder value." The company is working with suppliers to cut supply costs from between 2 per cent and 10 per cent, ranging from contracts for construction workers to the price of carpets and curtains.

Redrow is, however, offering discounts to buyers such as help with the deposit or stamp duty worth on average 3 per cent of the asking price, Mr Fitzimmons admitted. The net average sales price of Redrow's homes edged up marginally last year to £162,800.

Mr Fitzsimmons said he expected the average sales price of the company's offerings to increase over the coming year as it benefits from building out a greater proportion of its land holdings recently acquired in the more prosperous South-East.

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