Credit crunch hits mortgage options

The number of mortgage products available to British borrowers has fallen by 40 per cent over the past three months, it emerged yesterday, as lenders have tightened their criteria and withdrawn large numbers of riskier home-loan deals due to the global credit crisis.

Sub-prime mortgages, advances made to those with poor credit ratings, have been the most commonly withdrawn products, Moneyfacts, the personal finance analyst said. It revealed 54 per cent of regular sub-prime home loans have been pulled since July, with 72 per cent of sub-prime buy-to let loans not available.

The decline follows a buoyant start to 2007 in the mortgage market, with the number of products available growing 22 per cent in the first six months, and a number of new lenders coming into the market. Julia Harris, a mortgage specialist at Moneyfacts, said: "Since its peak in July, products have been flying off the shelves."

Moneyfacts said 20 per cent of prime buy-to-let products, and 16 per cent of prime residential mortgages, had been withdrawn since July. "In general it's the higher-risk products which have been pulled, while many existing products have also seen more conservative limits applied," Ms Harris added.

"The maximum loans to value have fallen, self-certification products have seen a decline, and borrowers are now less likely to find a sub-prime lender that will accept extra-heavy or unlimited adverse credit."

Melanie Bien, a director of the independent mortgage broker Savills Private Finance, warned borrowers to expect the tougher environment to continue over the next few months. However, she said it was still possible for most borrowers to get a loan.

"There definitely are fewer products available and not just in sub-prime," she said. "We think it's a problem that will continue for a few months yet – it's costing lenders more to borrow, and it's a much tougher market for them."