The average rent has risen by four per cent during the last quarter, and by 12 per cent during the last six months, reaching a record average of more than £1,000 a month, according to Paragon’s latest Buy-To-Let Index.

Private rented accommodation is being stretched by the demand for rented homes, as would-be first time buyers are frozen out of the market and instead are waiting out the credit crisis in the hope that mortgage lenders will soon offer more affordable rates and demand smaller deposits.

The death of the 100 per cent mortgage has put many people’s plans for getting onto the property ladder on hold, as first time buyer mortgage deals are becoming increasingly hard to come by and people are instead vying for rented accommodation.

The buy to let mortgage sector has also been affected, as lenders now demand higher deposits, but those already in the market are finding some solace in the global economic crisis that is putting immense strain on household budgets.

John Heron, Paragon’s director of mortgages, says: “The backdrop for buy-to-let remains positive across the country – potential residential purchasers are reluctant to buy in the current market or are unable to secure a mortgage and this is fueling extra demand for rented accommodation.”

A third of landlords report that tenant demand is seeing rapid expansion, and a further 58 per cent of landlords said that it is strong and stable, the report found. The Association of Residential Letting Agents has predicted that this demand for rented housing will continue to increase as the credit crisis means that lending criteria is strict and rates high.

“The professional end of the market remains committed to buy to let over the long term,” Mr Heron continued. “They typically hold their investments for a decade or more, they are not intending to sell following the CGT changes and they are not experiencing pressure on their finances as a result of the credit crunch, as they borrow an average of less than 40 per cent of the value of their portfolios.

“On top of that, they are enjoying steady growth in rents. The average rental property now generates in excess of £1,000 per month, and this upward trend looks set to continue in the future.”

© Fair Investment Company Ltd