There is now a very real chance that Taylor Wimpey, the UK's largest housebuilder by production, could become the first builder to fall victim to the credit crunch.

Created from a merger of Taylor Woodrow and Wimpey just a year ago, the company has stolen the dubious mantel of housebuilder most likely to collapse from Barratt Developments, after it revealed today that it had failed to secure between £400 million and £500 million of new funds from investors.

In theory, Taylor Wimpey has plenty of time to sort out its balance sheet, as it is not in danger of breaching covenants on its £1.7 billion debt until February. In the meantime, short-term cash flow is good and the company has taken tough measures to make sure it stays that way by closing a third of its offices and almost a fifth of its staff.

However, in trying to convince shareholders to put up cash, Taylor Wimpey has to argue that it is a good bet in the face of a sharply declining housing market and a very volatile stock market. It is not surprising that investors could not be persuaded yesterday amidst a raft of bleak economic data relating to housing and construction.

The problem is that there is no end in sight to the rationing of mortgages, which is the main reason for the plummeting housing market. Taylor Wimpey is preparing for a tough 12 to 18 months.

The £660 million of write-downs that have already occurred are based on average house prices falling by 10 per cent, but the housebuilder has said that its worst-case scenario would be a 25 per cent fall over the next 18 months. Should that happen this company is in real danger of being wiped out.

The banks may choose to rescue it, but it may be that a private equity buyer or another housebuilder might see an opportunity here to get hold of Taylor Wimpey's £2.3 billion asset base for a bargain price. In either case, with shares having lost 94 per cent of their value since April last year, investors should not hang around in the hope of a rescue as the company's financial position could get significantly worse before it gets better.

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