Banks are turning off the tap to the buy-to-let mortgage market, cutting loans to landlords by almost a fifth during the first six months of the year.

According to the Council of Mortgage Lenders (CML), banks, building societies and other finance providers made just 144,600 new loans to buy-to-let borrowers during the first half to the end of June, a fall of 18 per cent compared with the second half of 2008.

The CML said there were 169,500 buy-to-let loans in the first half last year, increasing to 176,500 during the second six months.

Lenders also tightened their criteria for buy-to-let loans, offering a maximum loan worth 83 per cent of the value of a property during the first half, compared with 85 per cent during the same period last year, the CML said.

Michael Coogan, director general at the CML, said: "The shortage of mortgage funding is creating similar problems for buy-to-let landlords as it is for other borrowers."

Big players in buy-to-let include Bradford & Bingley, which has been forced to turn to its existing shareholders to support a £400 million emergency capital raising in the face of funding pressures.

The CML said the fall in buy-to-let lending compared favourably with falls in the wider market, where house price loans and remortgages fell by 28 per cent over the same period.

Mr Coogan added that the rental market, on which buy-to-let landlords demand for their profits, will remain underpinned by strong demand, as would-be homeowners stay confined to the rented sector because house prices are unaffordably high.

However, the slide in loans to specialist multiple property-owners underscores the vulnerability of buy-to-let, whose main lenders are heavily reliant on wholesale markets for their funding.

These providers will have to pay more to finance the perceived higher risks of being exposed to both rental and property prices.

Buy-to-let mortgages represent 9 per cent of the total number of UK mortgages outstanding and 11 per cent of the value of mortgage stock, according to the CML.

It said the number of buy-to-let mortgages outstanding is still on the rise. There are more than 1.1 million buy-to-let mortgages in the UK, worth a total £132.5 billion, the CML said. The number of mortgages made is 19 per cent higher than a year ago.

The CML argued that arrears in buy-to-let are far less problematic than in the wider market.

Arrears in buy-to-let loans jumped, with about 1.1 per cent of loans more than three months in arrears, up from 0.73 per cent during the previous six months, the CML said.

However, this compares with an arrears rate of 1.3 per cent among traditional mortgage borrowers, it said.

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