Despite signs of improvements in the wider mortgage market, nearly nine out of 10 buy-to-let landlords are still having difficulty getting finance, new research shows.

According to specialist lender Paragon Mortgages, 89% of landlords trying to take out a mortgage on a buy-to-let property in the quarter to August said they found access to credit was more difficult than during the previous three months.

Of the investors only 3% said it was easier to obtain a mortgage, while 8% said they did not notice any change.

The buy-to-let mortgage market, which is heavily dependent on wholesale money markets for funding, has been hit hard by the credit crunch.

Mortgages available on buy-to-let properties have also dwindled in number to just 196 - nearly 94% down from August 2007, when the credit crunch first struck.

While there are signs conditions may be improving in the wider mortgage market, the availability of buy-to-let mortgages has continued to fall in recent months, dropping from 218 in May.

John Heron, Paragon Mortgages' managing director, said: "Product availability in the general mortgage market has improved slightly in recent months, but has worsened for the buy-to-let market.

"Mainstream lenders are reducing their focus on this sector and specialist lenders are still unable to access the wholesale funding markets to enable them to offer new products.

"We know that there is demand from investors to purchase new property, particularly with returns from savings products being so low, but they are being frustrated by a lack of mortgage supply."

He said buy-to-let lending levels had slumped, and warned that there was a real danger the private rented sector could start to contract, particularly if so-called accidental landlords began to sell their homes now that the housing market was picking up.

He said: "This would be disastrous for those sectors of the population that rely on the private rented sector for their housing needs.

"The Government has already taken steps to increase liquidity in the lending markets but these have had limited success. It is imperative that more steps are taken to improve confidence in and access to the wholesale funding markets."

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