The sub-prime buy-to-let mortgage market has virtually collapsed after the summer’s credit crunch with lenders withdrawing almost 90 per cent of deals.

According to Moneyfacts, the price comparison website, more than half of buy-to-let deals for landlords with troubled credit histories have vanished in the past month, sparking fears that many may be forced to sell their investments.

There were 1,383 sub-prime buy-to-let deals available in July. There are now 149. Only four relatively unknown lenders remain in the market: Preferred Mortgages, edeus, Manchester Building Society and Pink, which is funded by The Mortgage Works, Nationwide’s sub-prime specialist arm.

The exodus means that investors who need to remortgage may no longer be offered attractive rates and will be forced to pay the standard variable rate, pushing up their monthly outgoings by hundreds of pounds when rental yields are relatively flat.

Melanie Bien, director of Savills Private Finance, the mortgage broker, said: “Novice landlords might sell up when the going gets tough and if the cost of mortgages rise. Without a similar increase in rents they might not be able to make it pay.

“If they are relatively new to it, they may have large mortgages on their properties and the payments may just be too much.”

The decline in the sub-prime residential market has also continued, with the number of deals falling a further 20 per cent since October. There are now 63 per cent fewer of these rates on the market than before the collapse of the US sub-prime market.

Julia Harris, analyst at Moneyfacts. co.uk, said: “With the sub-prime buy-to-let market already virtually destroyed, it surely cannot sustain much more pressure before it vanishes. In less than a year, the sub-prime market has grown, flourished, and is now wilting fast.”

The fall in sub-prime residential and buy-to-let deals comes shortly after Kensington Mortgages, which specialised in the market, pulled out. Kensington Mortgages also funded Bank of Ireland’s sub-prime operation. Ms Harris said: “When one big lender withdraws, you see a massive drop. They don’t do just one deal, they are responsible for hundreds.”

Moneyfacts called for lenders to take a radically new approach to the sub-prime market. However, the CML said the problem is to do with funding, not features of mortgage deals.

Moneyfacts recorded a slight recovery in the prime mortgage market, with a 10 per cent increase in the number of standard loans available since October.


The relative cost of the prime numbers

Prime A clean credit record. Lenders used to allow “minor debts” on prime deals, but Moneyfacts says that this is no longer the case

Light or near-prime The greyest area. For borrowers with no more than two County Court Judgments (CCJs), up to a maximum of £3,000

Medium Three CCJs to a maximum value of £5,000

Heavy Four CCJs to a maximum value of £10,000

Extra-heavy Unlimited CCJs worth more than £10,000

Source: Moneyfacts