Taylor Wimpey said orders since January were 26 per cent below last year, with trading falling off since March's full-year results as investors and first-time buyers face particular difficulties.
The group, which sells homes under brands including George Wimpey and Bryant Homes, said: "We anticipate that the current subdued conditions will continue, with interest rates and mortgage availability being key determinants of customer confidence."
Shares in the group fell more than 4 per cent as the company also braced investors for profits at the "lower end" of expectations this year.
House builders have been on the front line of the credit crunch as cash-strapped banks tighten up lending terms for borrowers and call for bigger deposits as fears for the market grow.
Mortgage deals have gone up for those trying to get a foothold on the property ladder despite three interest rate cuts in the last five months from the Bank of England.
Taylor Wimpey said it remained "very cautious" of the UK land market, where it has seen prices starting to fall.
It hopes to weather the tougher conditions through tight cost controls and maintaining a "steady but reduced" sales rate.
The increased UK gloom adds to the group's exposure to the US housing market, which has suffered even greater woes over the past two years.
Taylor Wimpey said US trading remained weak and the firm does not see prospects improving significantly this year. Further write-downs on land and work in progress are likely, albeit not on the scale of 2007's £283.4 million hit.
Spain's housing market - also in the grip of a slowdown - continues to be weak, although its operations in Gibraltar have seen more "robust" trading.
The group was formed last year from the £5 billion merger of rivals Taylor Woodrow and George Wimpey a year ago. But share prices in the sector have since slumped, causing the company to be relegated from the FTSE 100 Index last month.