Analysts said the dividend cut will save about £15m and is likely to be repeated with this year's interim payment, but added it was little surprise with the industry's well-publicised troubles.

Persimmon said net debt was £600m at the end of last year, reduced by 34 per cent from £906m in June. The Charles Church firm added that results for the year ended December 31 will be in line with expectations.

The announcement gave a boost to Persimmon's shares, which have been cut by about 60 per cent over the year. They closed the day up 4.74 per cent at 293p.

In the update ahead of its results, Persimmon said cash generation was strong in the second half of last year. The group is paying close attention to sales of stock properties and has reduced by half its part-exchange properties.

The group sold 10,202 homes in the year – down 36 per cent on 2007. The average selling price fell more than nine per cent in the year to £172,000, from £189,558 in 2007.

However, that was an improvement on the general housing market decline, with Nationwide Building Society this week reporting that British house prices fell 15.9 per cent last year in the worst year on record.

Current forward order sales of £400m suggest another tough year, compared with £603m at the same point last year.

Persimmon said: "While we believe that the long-term future for the UK housing market remains good, the short-term outlook is challenging."

Late last year Persimmon made a £600m writedown on the value of its land. It axed 40 per cent of its workforce, laying off 1,100 office staff and 900 site workers, to save £45m annually.

Falling output from housebuilders will cast more doubt on Government housing targets. Of the three million new homes the Government has pledged by 2020, about 400,000 are planned for Yorkshire.

Lack of mortgage finance and tumbling consumer confidence has paralysed the industry. Persimmon added: "Until there is an improvement in the restrict-ed credit conditions currently experienced we will continue to focus on conserving cash."

Debt levels are seen as key indicator of housebuilders' ability to survive the housing market downturn, as banks prioritise replenishing their own balance sheets, thus restricting lending and making it more expensive.

Persimmon was able to drive borrowings down to a lower-than-expected level thanks to the early receipt of a tax payment. It added that talks have started on refinancing its £600m debt, and "good progress" has been made with bank syndicate and private placement investors.

KBC Peel Hunt analyst Robin Hardy said while the early debt reduction eases the financial pressure on Persimmon, it will have an uphill struggle to refinance the debt and could breach banking covenants.

He added the group's complex debt structure – with the majority owed to US private placement investors – means tough times ahead for Persimmon, with foreign investors withdrawing lending and could see Persimmon having to renegotiate the debt with British banks at prohibitively higher rates.

"The message we have got here is in 2009 debt is coming home. Recently they have not had much debt with UK clearers.

"It means potentially having to come to the UK clearers. It's not going to be easily achieved."

Persimmon reports full year results on March 3.