The buy-to-let boom has “blown up in the faces of borrowers” as property prices fall and new mortgage deals disappear, according to debt specialists.

Terry Balfour, director of individual voluntary arrangement comparison site IVA.com, predicts trouble ahead for smaller buy-to-let investors in the current market.

“Plummeting property prices and the effects of the global financial crisis are having disastrous effects on property market investors at the lower end of the scale,” he said.

“A couple of years ago when buy-to-let mortgages were stack ‘em high, sell ‘em cheap and property values were soaring, a second property was an affordable way for ordinary working people to try to build a nest egg for the future.

“But since living costs have gone through the roof and mortgage lenders have battened down the hatches in the wake of the credit crunch, this plan has backfired for many.”

Following the fall of Bradford & Bingley, the UK’s largest buy-to-let lender, its competitors have left the market too.

There are now just 481 buy-to-let mortgages on the market – compared to 662 just a week ago.

As remortgage options reduce, smaller buy-to-let landlords may find they have no option other than to go onto a lender’s standard variable rate (SVR) when an initial fixed-rate expires.

The rise in mortgage costs outstripping rent means many landlords are having to dip into their own pockets to cover mortgages. And falling property prices mean investments are losing their value.

“Owning a second property was a dream come true for a great many people and so letting go of that is difficult in more ways than one, particularly if they are now in negative equity and face making a loss on top of their growing debts,” Mr Balfour said.

“Their major concern, especially for those with families, is to hang on to their own home but with a second mortgage draining their resources, that is also under threat.

“They are very scared and bitterly disappointed that their attempt to improve their lives has gone so very wrong.”