The number of mortgages on offer on the market has dropped dramatically in the wake of the credit crunch, falling by 40 per cent in the last three months, according to figures out today.

Sub-prime loans have seen the biggest decline.

Since July, more than 5,000 sub-prime mortgages have been pulled from sale, according to Moneyfacts.co.uk, the price comparison site. The number of sub-prime deals has fallen by 72 per cent in the buy-to-let market and by 54 per cent in residential loans.

Prime borrowers have also seen a reduction in choice. There was a 16 per cent fall in the number of prime residential deals and a 20 per cent decline in numbers of prime buy-to-let, said Moneyfacts.

Mortgage experts said that lenders had deliberately cut the supply of home loans to reduce their exposure to risk after the fallout from the US sub-prime mortgage crisis.

Northern Rock, the beleaguered lender, has slashed its range from more than 230 loans to around 70.

Dozens of deals also disappeared following the merger between Nationwide and Portman Building Societies.

Many banks are also withdrawing loans worth 100 per cent or more of the property value and those for self-employed people.

Lenders are also applying stricter rules to those deals left on the shelves.

The figures showed that sub-prime mortgages were the fastest growing sector in the market before August. In the first six months of 2007, the total number of sub-prime loans increased by 22 per cent.

Julia Harris, of Moneyfacts.co.uk, said: "In general it is the higher risk products that have been pulled, while many existing products have also seen more conservative limits applied. “Lenders seem to be allowing the market to stagnate, very few new launches are being made, rate changes are slow and there is a discernable lack of innovation. It would appear nobody is prepared to pop their heads over the parapet and make distinctive changes, it’s a wait and see game... If housing prices continue to fall or arrears begin to rise, these could be a catalyst for trouble far worse.”

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