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B&B fallout will hit mortgages and take prices down further in UK property market

The most competitive deals are being pulled and the cost of mortgages will be increased. Until now B&B was offering the best buy-to-let mortgage deals.

Analysts are warning that between 400,000 and 500,000 of the 1.2 million outstanding buy-to-let mortgages in the UK are likely to require refinancing in the next 12 months.

With the values of properties falling and the required rental cover needed to secure new borrowing rising, most borrowers will struggle to meet lending criteria, according to Ray Boulger, senior technical manager at mortgage broker John Charcol.

'Nobody is now offering 85% or above. If people can re-finance at 75% or less they will have a lot more choice, although valuations are a lot more conservative,' he said.

'With rental cover now expected to be between 110 to 120% of mortgage payments a lot of people are going to struggle to re-finance and will have to take their current lenders default rate,' he added.

Attention will now turn to the government and its strategy for dealing with the rising arrears level on the B&B loan book, facing a choice of protecting value and being seen to foreclose on vulnerable borrowers. B&B had seen a rise in the number of borrowers more than three months in arrears.

The fall out from the UK crisis combined with the turmoil in the US will have a further weakening effect on property prices. Howard Archer of economic analysts Global Insight predicts that banks will keep cutting back on lending.

'It seems odds-on that house prices will head downwards for some considerable time to come, particularly as lending conditions tighten further in the near term at least amid the current turmoil caused by the collapses in the US,' he said.

He warned that rising unemployment would speed the fall in house prices as people will be forced to sell homes at huge discounts.

Analysis firm Capital Economics also predicts further house price falls. 'Recent events in the financial markets and the likely fall-out on the wider economy, which is already tipping into recession, are set to weigh heavily on buyer confidence,' said Seema Shah, property economist.