July 2 (Bloomberg) -- Taylor Wimpey Plc slumped 42 percent in London trading after the U.K.'s largest homebuilder failed to raise funds from investors, scrapped its first-half dividend and said Finance Director Peter Johnson resigned.

Reeling from the worst housing slump in 30 years, Taylor Wimpey will close a third of its U.K. offices and cut 900 jobs, Chief Executive Officer Peter Redfern said. Shares of the 128- year-old company fell 25 pence to their lowest in almost 16 years.

Taylor Wimpey, formed by a 4.3 billion-pound ($8.6 billion) merger last year, said that without investment the company may default on the terms of its 1.7 billion pounds of debt. Second- quarter orders fell as much as 60 percent as mortgage approvals dropped to the lowest in at least nine years. Shares of Barratt Developments Plc and Redrow Plc lost more than 30 percent today.

The company faces a ``very real danger'' of ``collapse,'' said Dresdner Kleinwort analyst Alastair Stewart. ``The statement could not be more grim.'' Stewart cut his recommendation on the shares to ``sell'' and withdrew his price target.

Taylor Wimpey's stock, also cut to ``sell'' at Panmure Gordon & Co. today, fell to 35 pence, its lowest closing level since September 1992 and its biggest one-day drop since at least 1988. The company now has a market value of 369.5 million pounds.

The builder traces its origins back to 1880, when George Wimpey established a stone business in London. Taylor Woodrow, the owner of Bryant Homes, was part of the group that built the Channel Tunnel between England and France in 1993, before it combined with its rival.

Mortgage Famine

The U.K.'s 19 billion-pound homebuilding industry is bearing the brunt of a collapse in the subprime mortgage market that's led banks and securities firms to announce record writedowns and credit losses of more than $400 billion. In response, lenders have reined in mortgage offers, starving potential homebuyers of funds.

``In the mortgage market, it's almost a famine,'' said former Bank of England policy maker Stephen Nickell in an interview yesterday. ``I'm very pessimistic at the moment.''

Annual U.K. house prices fell in June by the most since the end of the country's last recession in November 1992, Britain's fourth-biggest mortgage lender Nationwide Building Society said yesterday. Home loan approvals in May fell by 63 percent from a year earlier to the lowest since at least 1997 and consumer confidence deteriorated to the lowest level in 18 years, reports showed earlier this week.

The company will write down the value of land by 660 million pounds. Rival homebuilders may need to make similar moves, analysts said.

`Complete Disaster'

Taylor Wimpey said six-month home reservations, where a customer makes a deposit on a property, dropped by 45 percent. The company is currently trying to lure customers with offers such as paying half the monthly mortgage payments of U.K. buyers for the next two years if they reserve a home this month.

The average selling price of a Taylor Wimpey home in Britain was 8 percent lower than last year and margins there fell 5 percent, it said. The builder has also been hurt by collapsing sales and earnings at its Spanish and U.S. operations.

``It's a complete disaster,'' said Panmure analyst Mark Hughes. ``It's a lot worse than we expected.''

Chief Executive Officer Peter Redfern stopped making new U.K. land purchases in September and plans to close 13 of its 39 British regional offices. In March, he suspended a 750 million- pound share buyback program until market conditions improve.

`Question of Survival'

``It could go bust if the market gets a lot worse,'' Simon Brown, a London-based analyst at Landsbanki Securities, said in an interview today. ``Cash is certainly the biggest issue in the next three to six months. It is now a question of survival.''

Taylor Wimpey currently needs a cash injection of as much as 350 million pounds to ensure its survival to the end of June next year, Brown said. However, ``the capital raising clearly is going to be more challenging with the share price halved today.''

Redfern said he got a ``very good'' level of support from existing shareholders, though recent volatility in global stock markets and slumping demand for houses deterred new investors from committing sufficient funds.

``We're very confident we will find a solution,'' Redfern said on a conference call with journalists. ``We've got a few options to consider and time to do it.''

AllianceBernstein Holding LP, Standard Life Plc, Legal & General Group Plc and London-based hedge fund Toscafund Asset Management LLP are among the company's largest investors.

February Test

Taylor Wimpey's Redfern said press speculation that it was looking to raise about 500 million pounds is ``not a million miles away.'' The next test of existing banking covenants will be in February. That may be the point when the company falters, Dresdner's Stewart said in a note.

A planned amendment of banking covenants is dependent on equity being raised, the builder said earlier this week. ``We believe banks might be forced to rescue the company, but this cannot be taken for granted,'' Stewart said.

The homebuilder, which had its credit score lowered to non- investment grade by Fitch Ratings last month, had some of its debt further downgraded by the agency in a report today.

Stewart said the operational and financial position of rival Barratt Developments is worse.

Barratt, the U.K.'s worst-performing homebuilding stock this year, is about to secure refinancing with lenders that will ease its loan conditions, the Daily Telegraph reported yesterday. The company will announce the refinancing, including 400 million pounds in new debt, during a financial update on July 10, the newspaper said.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net.

Last Updated: July 2, 2008 12:52 EDT