HOUSEBUILDERS LOOK set to bear the brunt of more pain and bankruptcies from the credit crunch with banks ramping up the price of corporate debt facilities as they come up for renegotiation.

Construction and property sector sources have told the Sunday Herald that banking facility rates were being raised by between three and five percentage points. The changes will see monthly interest payments rise by 50% or more, in some cases amounting to tens of millions of pounds.

UK housebuilders are already struggling to sell their stock and many are already heavily indebted, having received bank loans at up to 10 times their earnings, compared with their usual five or six times as the market reached its peak.

This means they are among the companies most likely to default and face tough renegotiations with the banks. New terms are likely to more than snuff out any benefits from last week's 0.5 points cut to the base rate by the Bank of England.

The Sunday Herald understands that the surge in borrowing costs coincides with what one source called a "general batterning down of the hatches" in the construction world that has seen trade creditors demanding payment early and staff going unpaid, according to the same source.

Housebuilders Crest Nicholson and McCarthy & Stone - both partially owned by HBOS and Scots entrepreneur Tom Hunter - have already been forced to restructure their debts, while countless others including Scotland's Tulloch, Cala and Miller Group have shed staff this year to keep themselves competitive.

Those who avoid breaches will also face the tougher terms when their facilities come up for their next annual review, which means it will likely be months before the full effects of the new lending policies come to light.

Many developers are tied to the stricken HBOS, which used its integrated finance model to lend them money and take equity stakes at the same time. This model, which looks very unlikely to resurface once the market settles, makes them vulnerable to the still-unknown restructuring plans of HBOS's would-be suitor Lloyds TSB, assuming the deal to buy the Edinburgh-based bank goes through.

Jonathan Fair, chief executive of housebuilders' association Homes For Scotland, said that some members would be lucky to survive the coming period as the industry depended on very fast property turnarounds that left little room for buying droughts or higher debt payments.

He said: "There will be those who haven't factored the higher rates into their business plan. Some will have to make cuts to their resources and some will not be able to sustain those levels of rate repayments in the long term".

Ian Gordon, bank analyst at Exane BNP Paribas, said: "The withdrawal of credit by the banks could lead to widespread corporate failures. It is already starting, the question is to what degree it will happen."

Kevin Cammack, a property analyst at Kaupthing, Singer and Friedlander, said: "Those that have had to renegotiate have had to pay a minimum of 300 basis points three percentage points more than their current facility, and in some cases 500 points more." A Scottish source said that companies were experiencing rises of 300 to 350 points.

The bad news was exacerbated last week, when estate agent Knight Frank published a report that found that Scottish urban land values had fallen by 40% while greenfield values had fallen 30%.

As Jason Hogg, Edinburgh-based director of development land at Jones Lang LaSalle, said: "If land values have fallen 40% when the developers generally borrowed at between 70% and 80% of loan-to-value, someone will be under water, won't they?"

He said that until a year ago, land was regularly traded three or four times by speculators and developers before it was sold to the company that would build houses on it. Those "left holding the baby" are now facing demands for discounts of 50% to 60% from the few speculators with money to buy. Hogg said he knew of four or five major housebuilders that were either trying to offload land in this way or else looking to convert it to a commercial development.

He said that the reckoning would come if the banks started insisting that land be sold, which is particularly feared with Lloyds/HBOS, although he has seen no signs of this happening yet.

Jonathan Fair said it would not be possible for the housebuilders to adjust to their new conditions by cutting any more staff. Instead he called on the authorities to speed up the process for consents like planning, utilities and building warrants to make the sector more efficient. He also said it was essential for the Libor interbank lending rate to fall back towards the Bank of England base rate. Despite last week's interest rate cuts and bail-outs, Libor rose to 4.75%, its highest level since last December.

A spokesman for HBOS said that the bank had no blanket policy of raising corporate lending rates by three to five percentage points, but he declined to deny or confirm that it was happening in individual circumstances.

Although RBS is not thought to have been increasing debt prices to the levels mentioned, a spokesman for the bank said: "In a contracting market debt facilities are naturally reviewed to reflect the risk in any transaction. Each case is judged on its individual merits, rather than as part of a rigid sector-wide view."