Buy-to-let mortgages made in 2006 and 2007 – roughly half of all outstanding BTL mortgages – are showing higher levels of arrears than those dating from earlier, before lenders relaxed underwriting standards, a Standard & Poor’s study shows.

The study, to be released today, investigated about 200,000 BTL mortgages spread across a variety of mortgage-backed securities pools.

S&P said it believed that roughly 20% of BTL mortgages had been packaged into securities, about the same rate as owner-occupied mortgages.

Until now, BTL mortgages have shown lower delinquency and default rates than those for owner-occupied housing.

The research also found that BTL investors could be at greater risk of exposure to negative equity because 88 per cent of all mortgages sampled were 'interest only', meaning that no equity was being repaid.

As prices fall, BTL investors have a smaller equity cushion to fall back on.

Financial Times