Kensington Mortgages, the first lender to offer homeloans to people with troubled credit histories, is to withdraw from the sub-prime market today.

The lender, which launched in 1995 and is one of the biggest sub-prime lenders in the UK, blamed market conditions for the move.

Ian Giles, of Kensington, said: “We are pulling out from the adverse sector because of lack of funding. There is no appetite in the securitisation markets for adverse credit, and we don’t think that appetite will return any time soon.”

Kensington said that the move was temporary, but it is not clear when the lender intends to offer sub-prime deals once again. Mr Giles said: “We wish we knew when we will return to the market. But we are assuming that it will not be until next summer at the very earliest.”

The move will come as a blow to sub-prime borrowers, who are already facing higher prices and now face less choice when they come to remortgage.

Melanie Bien, a director at independent mortgage broker Savills Private Finance, said: “Market conditions are so tough that many lenders have pulled back and practically repriced themselves out of the market, with higher rates and loan-to-values. If you want a sub-prime loan now, you will have to pay quite a premium.”

"The fact that Kensington has pulled out completely demonstrates just how tough the market is at the moment. Withdrawing all its sub-prime deals is a drastic move, particularly as the lender was so confident a couple of months ago that it wouldn't have to go to such an extreme measure.”

Several sub-prime lenders, including DB Mortgages and Unity Homeloans, withdrew their non-conforming product ranges in August, but at that time Kensington said that it had no plans to withdraw from the market.

The lender is set to launch a new range of prime mortgages, but with lower loan-to-value (LTV) ratios. Prime borrowers will only be able to borrow up to 90 per cent of the value of their home, down from 95 per cent, while borrowers applying for a self-certification mortgage will only be able to borrow up to 80 per cent, down from 90 per cent. Mr Giles said: “We are building these portfolios to order, and institutions want lower LTVs.”

Times Recommends

• Food prices rise 8.3% on soaring fish and meat
• Car sales crash as economy hits skids
• House prices fall but Bank leaves rates on hold