'Strong demand' for homes to rent

Lenders are demanding bigger deposits from first-time buyers

The demand for rented properties remains strong as rising mortgage bills and calls for larger deposits put many buyers off, a report has claimed.

The Association of Residential Lettings Agents (Arla) said that 39% more agents reported that demand had outstripped supply in the last three months.

Greater London and the South East saw the biggest imbalance.

But Arla said rents were falling as there had been a surge in the number of new two-bedroom flats on the market.

"We are seeing corrections in individual locations throughout the country. The main cause of these is the developments of new blocks of two-bedroom flats coming on-stream," said Ian Potter, head of operations at Arla.

"In many places this has had a positive effect as it has allowed the rental market to provide stability in housing at a time of volatility in the sales market. It also demolishes the myth of soaring rent levels," Mr Potter added.

But in May, Capital Economics, a London-based consultancy, forecast that rents would rise by between 10% and 11% over the next two years.

'Sitting tight'

The Arla research, based on responses from 444 letting agents, showed a fall in the average length of time that a property remained empty between tenants, dropping from 24 days to 22 during the last three months.

It demolishes the myth of soaring rent levels Ian Potter, Arla

It also found that 77% of landlords said they were not planning to either buy or sell properties in the near future.

In the course of the last week, major lenders including Nationwide, Abbey and Bradford & Bingley have increased the rates of new mortgage deals.

But last week analysts Hometrack said a 10% fall in house prices would enable a fifth of those currently priced out of the market to buy a two or three-bedroom home.