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The news that Taylor Wimpey has extended rescue talks with its lenders into 2009 prompted a bout of collective teeth-sucking in the City last week.

In a statement to the stock exchange, the housebuilder said its banks were supportive of a deal to relax lending covenants, but that talks had been extended beyond the December 2008 deadline to include bondholders, who are owed a 拢450m slice of its overall 拢1.7bn debt.

The timing could not have been worse given the wider ructions in the banking sector, but whether this leaves the glass half-full or half-empty is open to debate. Charlie Campbell, an analyst at Liberum Capital, said news of the banks鈥� positive stance was the 鈥渇irst step鈥� towards the housebuilder鈥檚 survival and retained his 鈥渉old鈥� recommendation on the stock.

But Robin Hardy, an analyst at KBC Peel Hunt, said the delay was 鈥渁 cause for concern鈥� and told investors to sell. He said: 鈥淵ou may see the bondholders rush for the door and demand their money back now.鈥�

Meanwhile, Kevin Cammack at Kaupthing retained his 鈥渉old鈥� recommendation but warned: 鈥淓verything is so unpredictable at the moment that it鈥檚 a close call whether Taylor Wimpey will survive.鈥�

Nerves are certainly jangling after events at Lehman Brothers, Bradford & Bingley and HBOS, but can the housebuilding industry survive without a high-profile scalp of its own?

Quite possibly, according to a source close to the talks between Taylor Wimpey and its banks. He said the mood among a committee of bondholders, which will begin talks with the banks within days, was supportive because the alternative was 鈥渟imply too awful to consider鈥�.

鈥淭he banks won鈥檛 need to lean on bondholders to support Taylor Wimpey,鈥� he said. 鈥淭o scupper the deal would mean lending to a company in administration and that would mean a very long and messy wait to get repaid, and nobody wants that. If talks go well, they get repaid on the maturity date plus a fee for agreeing to help.鈥�

If the banks thought Barratt wasn鈥檛 going to get the best price from its assets, they might as well have taken Taylor Wimpey out and put a bullet in the back of its head

Robin Hardy, KBC Peel Hunt

The attitude of lenders has appeared supportive since Barratt became the first listed housebuilder to announce a deal in July.

One City analyst said banks had little option but to throw housebuilders a lifeline. 鈥淭he alternative was to withdraw credit lines and recover some of their debt by selling off assets for whatever they could get. But ask yourself who is the best seller of houses out there. The answer is Barratt, so why pull the plug?鈥�

KBC Peel Hunt鈥檚 Hardy agreed:鈥淚f the banks thought a selling machine like Barratt wasn鈥檛 going to get the best price from its assets, they might as well have taken Taylor Wimpey outside and put a bullet in the back of its head.鈥�

The Barratt deal was followed by an agreement at Redrow in September and last week 拢36m-turnover Oakdene became the latest company to make upbeat noises about the supportive stance of its banks. It had fallen in breach of its covenants after a 拢6.4m loss in the first six months of 2008.

The banks themselves concede that they have little alternative. One senior banking source said: 鈥淲e will remain supportive of the housebuilders because it is in our interest to waive covenant breaches, provide a more accommodative covenant package or even allow interest and payment holidays.鈥�

He added: 鈥淭he alternative is that we take ownership of the housebuilders and their developments and landbanks. We have little expertise in managing such assets and our own capital ratios will be damaged by taking them onto our balance sheet.鈥�

Although the banks do not want to take on land if they can help it, it still plays an important role as a long-term asset, according to Campbell. He said: 鈥淚n the end, common sense will prevail because the banks can see the long-term potential of land.鈥�

Another analyst added: 鈥淚t鈥檚 not like telephone directory Yell, for example, which has been in talks over 拢3.7bn of debt. All that company has to fall back on is the loyalty of users.鈥�

HBOS was always the biggest housebuilder anyway, given its investment in the sector. You could say the industry鈥檚 already suffered a big casualty

Senior housebuilding source

Campbell said the dire state of the mortgage market also played its part. 鈥淚f the economic situation were healthier and the banks could wind up a company and sell off the plots tomorrow it would be a different story.鈥�

The consensus may be that the industry will avoid a major casualty, but there are dissident voices. Mark Hughes, an analyst at Panmure Gordon, said some big players could get into trouble if the market continued to drop, despite renegotiated bank deals.

He said: 鈥淚f the level of falls in house sales seen up until now continues into February and March next year, then things are going to get difficult for the more highly geared housebuilders.鈥�

Richard Kelly, construction partner at BDO Stoy Hayward, warned that there would not necessarily be a safety net for smaller players. 鈥淏anks know they are not housebuilders and don鈥檛 want to take on thousands of sites, but smaller developments would be much easier to handle.鈥�

One senior source at a major housebuilder agreed. He said: 鈥淪ome smaller guys live hand to mouth from the banks and they鈥檇 go under if they lost funding for new projects.鈥�

He adds: 鈥淭he joke was that HBOS was always the biggest housebuilder anyway, given its investment in the sector. You could argue that the industry has already suffered a big casualty.鈥�

Whatever happens, the banking source indicated a strong reluctance to pull the plug. He said: 鈥淚t is unlikely we will enforce receivership unless the debt coverage levels are so dire that an asset sale is the only exit. Even in that scenario, sitting tight and waiting for a market stabilisation may be more logical than a fire sale into a declining market.鈥�

As this banker weighs up his options, a popular adage will inevitably play on his mind.

鈥淚f you owe the bank 拢1m, you have a problem. If you owe the bank 拢100m, the bank has a problem.鈥�