THE credit crunch has hit Bexley, with the announcement of the collapse of a multi-million pound regeneration scheme.

Struggling house building company Crest Nicholson has pulled out of its partnership in the Erith Western Gateway scheme intended to transform Erith’s riverfront area.

But while Bexley scrambles to find another developer to take on the project, the news has been greeted with sighs of relief from Erith townspeople.

The redevelopment project involves 13 sites along the banks of the Thames, nine of which are owned by Bexley Council.

Plans included a hotel, high density housing in tower blocks up to seven storeys high, and new community facilities.

Bexley has spent more than five years trying to get the project off the ground.

In July last year, after a nine-month process, the council announced it had chosen Crest Nicholson in partnership with social landlord Orbit South from four other bidders, to take on the redevelopment.

At the time, it was hoped work would begin sometime this year.

But there has been speculation in the financial press in recent months about the financial state of the company, bought out in 2007 by HBoS and Scottish tycoon Sir Tom Hunter.

Late last year it admitted it needed a refinancing package.

Announcing his company’s withdrawal from the Erith scheme, Crest Nicholson’s group board director, Chris Tinker, expressed his “regret and huge disappointment at having to take this difficult decision”.

Bexley Council leader Councillor Teresa O’Neill said: “"We are all clearly disappointed at this decision which we know was not taken lightly.

“In the current economic climate, a lot of businesses are reviewing their priorities and we understand that many developers will need to focus on schemes already underway.”

She added: “A lot of work has gone into getting us this far.”

Cllr O’Neill said Bexley had been heartened by the fact that the Homes and Communities Agency of the South London Gateway would continue to work with the council on the project.

Its area director, Philip Dibsdale said the agency was still “fully committed” to the regeneration scheme and would be working to “enable the redevelopment of this area to begin as soon as possible”.

Vivien Knibbs, managing director of Orbit South said it also remained committed to the scheme.

But in Erith, where people have consistently opposed some elements of the redevelopment, the news prompted a different reaction.

Doreen Ives, who chairs the town forum said: “I think this is going to give us a breathing space.

“I would still like to see the redevelopment go ahead, but the current scheme is not what townspeople were looking for.

“The density was too high and we were unhappy with plans to build on part of the Riverside Gardens.”

She added: “We have been saved from that for the time being and this will give us time to think about what we would be happy with.”

Mrs Ives said the centre of Erith had been a building site for a considerable time.

She added: “I am not feeling terribly depressed at this news.”

Community activist Alec Tapper said the news was “a huge relief”.

He said: “It will give us a respite from the high density flats the project would have crammed into Erith.”

Mr Tapper said high rise flats with large amounts of social housing would not build a mixed community for the town.

And he warned: “I know the plans for high density housing won’t disappear because that is the way the developers will make their money, but the fallout will come in the form of anti-social behaviour and an increase in knife and drug crime.”