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Skandia forecasts sliding residential property prices, higher mortgage servicing costs and sluggish rental growth will drive many aspiring landlords from BTL property, releasing much private investment capital that has gone into property speculation in recent years.

As a result, Skandia predicts that the mortgage-backed BTL market will shrink to its average size over the past decade.

In recent years stock of BTL mortgages rose from £2bn in 1998 to £120bn by the end of 2007. The BTL share of the total UK mortgage stock also increased, from less than 1 per cent to 10 per cent over the same period.

Skandia said mean reversion would lead to £77bn of BTL mortgage surrenders and reduce the stock of BTL mortgages to £44bn - a level last reached in 2004.

It said, assuming the average maximum loan-to-value (LTV) ratio of UK landlords of 80 per cent over the past 10 years, it is estimated that a minimum of £18bn of equity would be released if the BTL mortgage pool contracted to £44bn of outstanding loans.

Nick Poyntz-Wright, chief executive of Skandia UK, said: "Private investors have accumulated significant amounts of equity in buy-to-let properties after a long period of strong growth in home and flat values.

"Higher mortgage rates and falling property prices will cause investors to reconsider their exposure to residential property and many will choose a more diversified approach."