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Last Updated: Monday, 10 September 2007, 15:57 GMT 16:57 UK
Mortgage lender in administration
Model house with coins
Regulators are seeking ways to protect affected customers
A British mortgage lender which offers loans to people with poor credit histories has gone into administration.

Victoria Mortgages said its funding had been "removed", becoming one of the first UK victims of the credit squeeze caused by worries over sub-prime loans.

Borrowers whose mortgage applications have been approved, but have yet to receive funds, are set to be worst hit.

But rival lender GMAC-RFC is to step in to give finance to some borrowers affected by Victoria's collapse.

'Funding removed'

Victoria is understood to have stopped making new loans several weeks ago.

But the firm's collapse means the loan applications of a small number of borrowers - thought to number between 300 and 400 - are in abeyance because it can no longer provide funds.

It is fair to say our funding line has been removed
Simon Read, Victoria Mortgages

"We have gone into administration," said Simon Read, the firm's head of business development.

"It is fair to say our funding line has been removed."

Victoria was established in 2005 and lends money to people with patchy credit records, so-called sub-prime loans which have been at the heart of the current US housing crisis.

According to Victoria's website, it requires "no explanation" of an individual's "adverse" credit position before considering them for funding.

The vast majority of Victoria's customers will be unaffected by its financial problems because it has sold its existing mortgage liabilities onto banks and other financial institutions.

It is understood that Victoria's problems were caused not by any deterioration in the financial position of its borrowers but by its bank deciding to withdraw funding because of the negative credit conditions.

Offer of help

GMAC-RFC said it had contacted the Financial Services Authority (FSA) about stepping into the breach to help Victoria's customers due to complete home purchases in the next few days.

It said it was "happy to help with a number of borrowers who have purchase transactions proceeding, that otherwise would have been left unable to complete on their new homes".

50 staff
5,500 customers
3% of UK sub-prime sales
Main owner is US firm Venturion Capital

"We are working with the FSA and the administrators to ensure these completions will take place over the next few days as planned," it added.

Victoria sold 500m worth of mortgages last year, accounting for about 3% of the overall sub-prime market.

Worried customers have been advised to contact Victoria or the administrators KPMG.

The UK mortgage market has yet to suffer any substantial fallout from the US sub-prime crisis, which was triggered by a wave of mortgage defaults as interest rates rose.

But analysts have expressed concerns about the fate of thousands of borrowers as their fixed-rate mortgages expire in the near future.

There is also the prospect of lenders raising mortgage rates to compensate for the increased pressure on their profits due to the general credit squeeze.

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