Barratt Developments, Britain's second largest house builder warned on profits today after reservations for its new homes fell by half and an increasing number of buyers pull out of purchases. It became the latest large builder to put the freeze on expansion.

The value of Barratt's book of forward orders, which includes reservations and exchanges on house purchases, today stands at £1.56 billion, a 26 per cent decline on the £2.1 billion booked this time last year.

Delivering a third quarter trading update today Barratt, headed by Mark Clare, said: "Since the end of March market conditions have deteriorated significantly as a result of an unprecedented reduction in mortgage availability and tightening lending criteria, combined with a decline consumer confidence."

Mr Clare said 'We do not expect to see a meaningful upturn in the housing market until there are improvements in the availability of mortgage finance."

Barratt has increased its use of sales incentives, including offers to pay the mortgage finance on a new home for the first six months or more, and started to lower sales prices in parts of the country.

This action Barratt warned "will have a small negative impact on operating margins in the current financial year."

Profits are bound too to be affected for Barratt's next financial year ending June 2009 after the company warned it was slowing the rate of new build in response to falling demand which will in the end effect turnover and profits.

Barratt traditionally tries to open dozens of new sales sites each year with room to build 50 to 100 new homes but today the company said: "New sites are only being started on a highly selective basis where we have clear visibility of demand and where work-in-progress can be particularly tightly controlled. Overall, we expect the number of sites to decline in the next financial year."

Persimmon, Britain's largest builder, said last month that it stopped opening new sites altogether in response to a fall in demand.

Barratt reported today that reservations on its new homes for private sale for the second half of its financial year ending next month averaged 276 per week, a decline of 33.6 per cent on the reservations made for the same period last year.

The decline in reservations has worsened however since the end of March, echoing recent trading updates by rivals at Persimmon, Bovis Homes, Redrow and Galliford Try.

Reservations are now running at about 206 homes per week meaning the rate has come down in total by nearly 50 per cent from weekly rate achieved between January and June last year.

Cancellations - buyers walking away after paying a reservation fee - have been running at about 25 per cent over the whole of Barratt's second half, in line with the long term average, but the company warned it had seen an incresase in cancellation rates over the past six weeks.

Reservation fees can range from £250 to £500 and are paid before a buyer has to exchange contracts on a purchase.

Barratt's short term debt problems were allayed today as the company announced that it had struck an outline refinancing agreement to roll over £400 million of £600 million debt that is due for repayment next April into a new two year loan which comes with a one year option extension.

Speculation had been mounting over the past few weeks that Barratt would be forced to come cap in hand to shareholders and ask for money via an equity rights issue to help pay down debts as cash flow dries up from a stalled housing market.

Barratt said that it continues to operate within its £2.6 billion of committed bank borrowings. Given the current level of reservations and completions net debt is expected to be £1.7 billion at its financial year ending June 30.

The company is struggling to sell a construction business acquired as part of last year's £2.2 billion takeover of Wilson Bowden, a rival house builder. Barratt is thought to be looking for up to £200 million for the Wilson Bowden Developments business, cash which would help pay down remaining short-term debt.

"We have also received a number of expressions of interest in the remainder of the business, although these are at a very early stage," Barratt reported today

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