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The CML said a lack of capital had limited the buy-to-let sector due to a "significant number" of lenders relying on wholesale funding.

Data from the CML revealed the number of new buy-to-let loans fell from 176,500 in the second half of 2007 to 144,600 in the first half of 2008.

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

"However, we expect the rental market to remain underpinned by strong demand, partly because some people who would like to buy a home are being forced to carry on renting for now."

Steve Olejnik, head of sales for Kent-based adviser Mortgages for Business, said the reduction in new loans came as no surprise as it had become increasingly difficult to place buy-to-let business.

He said: "Some of the buy-to-let lenders have stopped lending completely. With rates going up, because of the liquidity issues in the market, landlords with properties coming up for remortgage have been better off staying on the standard variable rate rather than switching over to a new deal."