A new study says that buy to let mortgages made in 2006 and 2007 are showing a higher level of arrears than those made in the period before lenders relaxed their underwriting standards.

A study by Standard & Poor’s, one of the world’s foremost financial companies study, looked at approximately 200,000 BTL mortgages spread across a variety of mortgage-backed securities pools.

S&P said it believed roughly 20 per cent of BTL mortgages had been packaged into securities, which was 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.

Andy South, principal in the S&P asset-backed securities team, said that if house prices fall by 25 to 30 per cent, between 20 and 40 per cent of BTL investors were likely to be in negative equity, compared with 14 to 20 per cent of prime, owner-occupied borrowers.

The study shows that, from early 2007, mortgages in serious arrears – those three months or more behind in repayment – began to rise sharply, albeit from low levels. Of the mortgages examined, 3.7 per cent of BTL ones were at least one month in arrears, against 2.9 per cent of owner-occupied mortgages, said Mr South.

The S&P report notes that there are some protections for BTL lenders that will help to mitigate losses, including the right to collect rent from a sitting tenant on behalf of a delinquent borrower. It also notes that demand to occupy rental property has soared in recent months, suggesting low void rates.