The buy-to-let market is showing signs of stabilising after being hit hard by the credit crunch, figures showed today.

The number of landlords in mortgage arrears fell sharply during the second quarter, while the rate at which lending is contracting eased, according to the Council of Mortgage Lenders (CML).

A total of 29,400 buy-to-let investors were at least three months behind with their mortgage at the end of the second quarter, a 17% fall compared with the previous three months.

The drop prompted the CML to predict buy-to-let arrears had now passed their peak.

The number of rental properties repossessed by lenders also remained static in the second quarter at 1,400, while 2,500 receivers of rent were appointed, down from 2,900 during the first three months of the year.

Appointing a receiver of rent enables tenants to remain in the property with their rent paid to the lender.

The use of receivers of rent has soared from just 1,000 in the second quarter of 2008, to 10,800 at the end of June.

The CML also reported a 5% rise in the number of buy-to-let mortgages taken out for house purchase during the three months to 12,950, the first increase for five quarters.

But remortgaging levels among buy-to-let landlords remained depressed, falling by 15% compared with the previous quarter to a new record low of 7,790.

Despite the pick up in lending for house purchase, total advances contracted for the seventh consecutive quarter to £1.9 billion, well down on the recent peak of £12.4 billion seen in the third quarter of 2007.

However, the CML said the rate at which lending was declining showed signs of moderating.

The buy-to-let mortgage market, which was heavily reliant on the wholesale money markets for its funding, was hit hard by the credit crunch.

The number of different buy-to-let loans available fell from 3,648 at the beginning of July 2007, to just 201 today, while many lenders withdrew from the market altogether.

Those who remained hiked their rates and tightened their lending criteria, making it more difficult for landlords to remortgage.

Buy-to-let lending accounted for just 5.6% of total mortgage advances during the second quarter, half the 11.9% it stood at during the same period of 2008.

Rob Thomas, senior policy adviser at the CML, said: "So long as properties have paying tenants, landlords now have much greater ability to service mortgage payments and we expect arrears to continue to fall as landlords are helped by lower interest rates.

"But healthy rental demand is contingent on a number of factors, including tenants' continued employment."

He added that while there was no evidence that landlords were exiting the market in large numbers, and some investors were buying more properties, the sector would continue to be constrained by the shortage of funding.