Flat I bought for £175,000 last year is now worth less than £100,000

Maurice Conroy, who owns a string of buy-to-let flats, bought the studio in Pimlico last summer. But he has just had it valued by three agents who told him it would now only sell for £80,000 to £100,000.

He is one of a growing number of buytolet investors who are discovering the property market is not necessarily a safe alternative to a pension.

Mr Conroy, 43, from Chelsea, admits he paid over the odds for the flat a year ago, but said the news left him reeling.

"It's like being hit in the stomach," he said. "It's the biggest drop I've heard of and I scan all the property news. A £95,000 drop - that's 50 per cent. Even if it sold for £100,000 that's 40 per cent. I questioned the agents and they said they cannot value it at more than £1,000 a foot."

Two agents valued it at £100,000, while Hamptons International said it was worth no more than £80,000.

The flat, in a Regency stucco-fronted terrace in Winchester Street, is 120 square feet - the size of a small double bedroom. It has a separate bathroom, a kitchen area and room for a sofa bed.

Mr Conroy and partner Caroline Faulkner secured it after a bidding war last August. Its original asking price had been £150,000.

"Two bids came in at £160,000 and because we wanted it we decided to go for £175,000," he said. "At that time it only meant an extra £20 or £30 a month on a mortgage. I had it valued soon after and was told it could make £225,000."

Mr Conroy had it valued this week as he looked to release some capital to invest in a house .

Sean Williams, assistant manager of Hamptons in Pimlico, said Mr Conroy had been a victim of last year's overheated market. "I think they paid over the odds by a factor of three," he said. "Things got rather silly last year. I am amazed there were even bidding wars going on for that property at that sort of level."

Mr Conroy has now decided to keep the flat, but with sales down by as much as 70 per cent since Christmas, landlords whose rental income does not cover the mortgage are in a serious financial trap.

Ed Stansfield of Capital Economics said: "Fears that the housing market would be flooded with former buy-to-let properties as landlords scrambled for the exit have, so far, been misplaced.

"The uncertainty generated by house price falls and the sharp reduction in mortgage credit availability has actually boosted demand for rented homes by frustrated first-time buyers.

"Property prices may be falling, but letting conditions are improving - rents are rising, property is letting faster and most landlords have decided to sit tight.

"But the further prices fall, the more likely it is landlords will sell up, or cut the number of properties they own.

"And if the recession damages demand from corporate tenants - an important part of the London rental market - it will increase stresses in buy-to-let."