The Government is facing calls to end the "discrimination" against benefit claimants by buy-to-let mortgage providers.
The Residential Landlords Association (RLA) has urged action against the "unjust practices" after its research found 66 per cent of lenders representing 90 per cent of the buy-to-let market did not allow properties to be rented to tenants in receipt of housing benefit.
The research was carried out last year by the association’s mortgage consultants, 3mc, and found TSB, Virgin and NatWest were among the lenders which imposed the renting restrictions.
David Smith, policy director at the RLA, said: "With growing numbers of benefit claimants now relying on the private rented sector, it is shameful that many lenders are preventing landlords renting property to some of the most vulnerable in society with little or no justification.
"The banks have had long enough to get their house in order. It is now time to take firm action to stop such unjust practices."
The RLA wrote to the Treasury minister responsible for banking, John Glen, calling for the Government to use its influence as a shareholder in certain banks to end the "discriminatory" practices.
The association also asked the Financial Conduct Authority and Bank of England to investigate the extent of the problem and prepare plans to end it, claiming the practices breach the FCA’s ‘Treating Customers Fairly’ agenda.
The letter also suggested the Equalities and Human Rights Commission carry out a review of whether the lenders’ practices breach equalities law.
The RLA's calls came after news a buy-to-let borrower had her mortgage revoked when the lender discovered she rented to a benefit claimant.
Helena McAleer, a landlord from Northern Ireland, contacted her bank, NatWest, to discuss releasing equity from her property - but instead Ms McAleer claims the lender revoked her buy-to-let mortgage citing its policy prevented rentals to benefit claimants.
Ms McAleer said the bank instructed her to "seek an alternative tenant" but it is understood NatWest did not tell her to evict the tenant.
NatWest’s buy-to-let eligibility criteria reads: "We will not consider multiple tenancies, Homes of Multiple Occupancy, bedsits, DSS tenants or 'Related Person' tenancies."
A NatWest spokesman said: "The bank has specific lending criteria and is not able to offer mortgages in certain circumstances, which are made clear on a customer’s terms and conditions.
"There are alternative providers who may be better suited for customers in these circumstances."
Ms McAleer has launched a petition and online campaign page calling for measures to close these "loopholes".
However, a UK Finance spokesperson said most lenders do not place restrictions on landlords letting to benefit claimants.
He said: "Any landlord wanting to let to tenants in receipt of benefits should be able to find a lender that will allow this.
"We always encourage individuals to speak to their lender if they have any concerns and research the market to find the best possible deal for their needs."