London-based sub-prime specialist, Victoria Mortgages, became the first UK lender to fall victim to the current credit crisis, when it announced yesterday that it had gone into administration.

London-based sub-prime specialist, Victoria Mortgages, became the first UK lender to fall victim to the current credit crisis, when it announced yesterday that it had gone into administration.

Simon Read, head of business development at Victoria Mortgages, said: "We have gone into administration. It is fair to say our funding line has been removed."

Read confirmed Victoria will not be able to complete outstanding mortgage offers, but declined to give any further details, saying a full statement would be issued, "later this week".

Backed by US venture capital group Venturion Capital, Victoria was launched just over two years ago, offering a range of products, from self-certified mortgages for "prime" borrowers to mortgages for borrowers with "heavy adverse" credit.

Victoria operated by consolidating its loan book, and selling blocks of mortgages on to larger financial institutions. However, last month Victoria reported along with a number of other niche lenders to those with poor credit histories - the sub-prime end of the market - that they were increasing mortgage rates by up to 2.5 percentage points as recent turmoil had dried up liquidity, pushing up the cost of borrowing to the sector.

Lenders such as Kensington; Mortgages Plc, a subsidiary of Merrill Lynch; Deutsche Bank's DB Mortgages, as well as Victoria, all raised sub-prime rates and tightened lending criteria.

Victoria had previously withdrawn a number of its products following the recent market turbulence and it is thought the final straw came for Victoria when it could not secure funding for a new range of products.

UK sub-prime specialists are finding it increasingly difficult to attract investors to help finance their mortgage book, particularly for those with a poor credit history, as a result of the global credit crunch caused by the crash in the US sub-prime mortgage market.

Specialist lenders traditionally sell off bundles of mortgages to investors to spread the risk of people defaulting.

The UK's sub-prime mortgage market, at £16bn, is far smaller and more recent than its US counterpart with subprime loans accounting for around 8% of UK lending in 2006, but 20% of US lending.

However, following a high level of defaults in the US on loans that some commentators say should never have been agreed in the first place, market-watchers have been wary of getting their fingers burned.

Edeus, which is partly backed by Merrill Lynch, and is one of the leading sub-prime mortgage lenders, has warned that the market could almost halve as banks continue to tighten up lending in reaction to the liquidity crisis.

Alan Cleary, managing director of Edeus, said he expected trade volumes in the sub-prime market to fall by up to 40% in the next 12 months: "The lack of liquidity in the secondary market is forcing all lenders to review or re-price their products.

"There is not a single buyer on the planet for mortgage-backed securities, it seems right now."

The Financial Services Authority, which regulates the market, said up to 381 customers who have current mortgage offers from Victoria may be affected.

Rival mortgage lender GMAC RFC has offered to review Victoria customers' potential completions for home purchase transactions due in the next three days with a view to providing these borrowers with a mortgage loan.

Partners from KPMG have been appointed administrators of Victoria.