Falling property prices, higher mortgage costs and poor rental yields will drive many landlords from buy-to-let property and release the £18bn in cash they have tied up in deposits for other investments, says insurance company Skandia.

In recent years buy-to-let mortgages shot from £2bn in 1998 to £120bn by the end of 2007. The buy-to-let share of total UK mortgages also increased, from less than one per cent to 10 per cent over the same period.

Skandia said mean reversion would lead to the market shrinking to about £44bn - a level last reached in 2004.

Working on an average mortgage loan-to-value of 80%, this means investors have stumped up the other 20% of the market value in cash, and this means a shrinking buy-to-let market would release £18 billion in cash for investment elsewhere.

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."