Standard and Poor's expects to downgrade a swathe of mortgage-backed bonds as refinancing requirements loom, meaning lenders to many of Europe's largest property developments are facing billions of pounds of losses. Ratings agency S and P last week put more than half the commercial mortgage backed securities (CMBS) issued in the year from July 2007 on creditwatch negative, signalling a possible downgrade after a review of the deals. It now plans to extend this review to older bonds.

S and P said it would begin downgrading the 2007 vintage bonds, as appropriate, by the end of September, adding "we do not currently expect the average downgrade to exceed two rating categories".

Such downgrades will force many bondholders to sell their holdings because they do not have mandates to hold assets rated below AAA. And a wave of forced sales would lead to further falls in CMBS prices, which are already trading at a substantial discount to their face value.

Even AAA-rated bonds are trading at prices as low as two thirds of their value, a bond market source said, because of the distress in Britain's ailing real estate sector.

Around €140 billion of CMBS debt remains outstanding, according to Barclays data, with much of the issuance in the later stages of the property boom.

Just over half of these bonds are secured against British property, backing shopping centres, office developments, pubs and care homes across the country, the data shows. The other two rating agencies are also reviewing their CMBS ratings, with Moody's having begun its check in February. Fitch's case-by-case analysis of the sector in Britain led to it downgrading 101 tranches of CMBS debt in the first three months of 2009 and upgrading just two. "We fully expect there will be more negative rating action as the focus shifts to Europe over the months ahead," said Fitch's Euan Gatfield.

Gatfield said falls in commercial property prices - which have exceeded 40 per cent since the summer 2007 peak - mean the "risk of bond default has risen materially".