Bradford & Bingley’s announcement that it was selling a 23 per cent holding to a US private equity firm may be the start of even greater misery for UK banks and might result in more buyouts or even full takeovers, experts warned today.

Kevin Mountford from comparison service Moneysupermarket.com said: “UK banks are prime material for potential takeovers at the moment. Banks have not become bad businesses overnight and there is still a lot of fear about what other skeletons will emerge from the closet.

"With share prices so depressed, this could be a great buying opportunity for an overseas bank wanting a foothold in the UK market,” he said.

B&B’s announcement may also cause consternation among UK landlords, whose borrowing options have reduced dramatically in recent months.

David Hollingworth at broker London and Country said: “Potential landlords have suffered recently because the buy-to-let mortgage market has shrunk so rapidly.”

The number of available buy-to-let mortgages has plummeted from around 3,000 since the credit crunch hit last summer to 543 today.

Darren Cook at Moneyfacts.co.uk said: “B&B currently offers just 14 mortgages, compared to 41 in January, which is a good indicator of how the market has shrunk overall. In January we had 303 two-year fixed rate deals, with an average rate of 6.32 per cent. Now there are just 87 such deals, with a higher average rate at 6.96 per cent.”

As well as raising interest rates, buy-to-let lenders now demand a deposit of at least 25 per cent, while the amount of rental cover needed to obtain a loan – the amount of rent that covers the mortgage – has risen from 100 per cent to 120, or even 130 per cent. Most lenders are also reluctant to provide mortgages to new-build properties, particularly flats, as these properties are the most likely to depreciate in value in a falling market.

B&B, like other buy-to-let mortgage lenders, has been badly hit by the credit crunch. It previously raised more than a quarter of its capital through the wholesale money markets but, since these sources have dried up, it has struggled to raise funds elsewhere. As well as raising £400 million from shareholders, it has sold £4 billion in loans, switched focus to lower-risk lending and increased savers’ deposits, taking in £1.9 billion during the first quarter of this year.

Specialist buy-to-let lender Paragon, the first UK bank to raise a rights issue with shareholders after the credit crunch, closed to new business in February, saying it needed a new source of funding. The bank, which also relied heavily on the wholesale money markets to raise capital, has seen its lending levels halve since last summer. Despite the £287 million raised from its shareholders, the lender announced a 39 per cent fall in first-half profits last month.

Other specialist buy-to-let lenders, including Mortgage Trust and Capital Home Loans, stopped lending to new business earlier this year.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive