Taylor Wimpey, the UK's biggest house builder, today gave a stark outlook for Britain's housing market which it said had "weakened" due to falling prices while the worsening mortgage drought was restricting first-time buyers.

The loss-making company, formed last year through the £5.5 billion merger of Taylor Woodrow and George Wimpey, said today it now expects its full-year results to be at the lower end of forecasts.

It admitted its forward order book for new homes had fallen by 26 per cent, compared to the 20 per cent decline it reported when it announced its year-end figures in March, while cancellations had risen.

Speaking before its Annual General Meeting today, Taylor Wimpey said: "Market conditions in the UK have weakened since we reported our preliminary results, with first time buyers and investors facing particular difficulties as a result of the increasingly restricted availability of mortgages."

Conversely, the company said while conditions in the US housing market remained weak, it was now beginning to see some stability and expects write-downs this year to be lower than those reported in 2007.

However, Taylor Wimpey said: "Based on current market conditions in the UK and the US, we anticipate that full year results will be at the lower end of our expectations."

A number of lenders have increased rates on certain of their mortgage products in the past fortnight, in spite of the Bank of England's Monetary Policy Committee cutting the UK interest rate from 5.25 per cent to 5 per cent last week.

Yesterday, Halifax lifted rates on some of its most popular mortgage deals by 0.5 per cent, the second rise in as many weeks, while Nationwide, Alliance & Leicester and Britannia also increased home loan charges.

Lenders have become increasingly reluctant to lend to each other, and have passed the higher costs they are paying to borrow onto their customers.

The Government has attempts to salve the mortgage market by pumping large sums of cash injections into the banking system, including a £15 billion injection this week. However, the London inter bank offering rate (Libor), which is the sum banks charge to lend money to each other, is still nearly a percentage point above the UK base rate.

It emerged last night that the Government may be close to agreeing a deal to ease the mortgage drought, where the Treasury would allow lenders to swap mortgage-backed assets for government bonds instead of cash. Banks would then be able to use the bonds as collateral for loans from other lenders.

In March Taylor Wimpey announced it had made a £19.5 million pre-tax loss for the year to December 31, 2007, compared to a £405.5 million profit in the previous 12 months, after it was forced to write-down £289.7 million on its American and Spanish landholdings.

At the same time, it admitted that the number of UK homes sold per site had declined by 25 per cent despite the company opening 50 more sites in the financial year.

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