The mortgage market barely managed to grow last month, according to new figures released by the Bank of England, with net lending at only £143 million compared to £3 billion in July.

The slump in growth of new mortgages issued in August was the biggest fall since the Bank of England's records began in 1993. Net lending in August was 5 per cent of July's figures and 2 per cent of the growth recorded 12 months ago. The number of new mortgages approved also collapsed to 32,000, compared to 33,000 in July, the lowest since 1999.

The sharp fall has been blamed on the shrinking property market and the government's indecision over stamp duty relief. The Council for Mortgage Lenders said that the speculation surrounding the government's plan to raise the threshold on stamp duty "had certainly not helped" the market. The Treasury eventually suspended stamp duty for properties worth up to £175,000 in September.

The figures from the Bank of England came as the specialist buy-to-let mortgage arm of Bradford & Bingley (B&B) announced that it was closing for new business following the takeover of the beleaguered bank by the Government.

The Government announced this morning that it was nationalising Bradford & Bingley. Its branch network and savings business has been sold to Banco Santander, the spanish banking giant, for £612 million. The Government is left with its £41 billion mortgage book.

The UK's biggest buy-to-let lender said in a statement that all mortgage offers that had been issued would be honoured, but no new applications would be accepted and no re-offers would be made.

Around 75 per cent of mortgages issued by Bradford & Bingley were buy-to-let deals or self-cert mortgages, which did not require applicants to provide proof of their income.

Experts fear that the move will lead to a steep rise in monthly mortgage repayments for buy-to-let landlords. In recent months a number of other specialist buy-to-let lenders have withdrawn from the market or increased rates and tightened lending criteria.

BM Solutions, owned by HBOS and the second biggest buy-to-let lender, raised rates over the weekend while the Mortgage Works and UCB, two more specialist lenders owned by Nationwide, are both expected to increased interest rates in the coming days.

Melanie Bien, director of Savills Private Finance, the broker, said: "There is concern over those landlords who are existing Mortgage Express customers who have come to the end of their deal. Will they get competitive terms to stay or will they have to remortgage elsewhere in a market where there are already fewer alternatives?

However, some experts suggest that the decision by B&B to close its buy-to-let lending business will not effect landlords in the short term. Ray Boulger, of John Charcol, another broker, said: "Mortgage Express has been pricing itself out of the market for some time and most landlords will have already had to look elsewhere for the cheapest deals".

In the long term, experts hope that the move to nationalise B&B will help steady the mortgage market. Giles Cook, director at Chesterton, the estate agencts, said: "There is a general perception that help is at hand which should be reflected in a stabilising property market.”