Borrowing costs may be rising, but landlords in parts of the country are enjoying something akin to boom times. The latest lettings survey by the Royal Institution of Chartered Surveyors (RICS), out this week, suggests that more homes are being made available for rent as the sales market stagnates and values slide. Yet demand - especially for houses - is keeping pace. And with rents up, particularly in the South, yields are now increasing at the greatest pace since the survey started recording them in 1999.

New analysis from Hometrack, the property data website, suggests that the cost of renting has risen 6.15 per cent in a year. Prices have jumped 17 per cent in Oxford, 16 per cent in Birmingham, 14 per cent in London and 10 per cent in Cambridge. The study looks only at two-bed properties, and those in 21 cities, but the figures show how tenants are being squeezed by rent inflation that beats that recorded for fuel and food.

The figures will discourage homeowners who are tempted to sell up and sit out the slowdown in the hope of swooping on a property bargain. FindaProperty, a search website, calculates that even if prices fall 5per cent, owners of a £230,000 property would be left £9,100 out of pocket once they have paid for rent, legal bills and other costs, if they sold up and bought a year later. These calculations will become even more off-putting if rents keep rising at current rates. Last week Knight Frank revealed that a maisonette in Notting Hill, West London, that let for £825 a week in 2004 now costs 60 per cent more at £1,315.

But for how long can such increases be sustained? Richard Donnell, the director of research at Hometrack, says that the high cost of renting will push tenants into home ownership. His research suggests that it is already eroding the premium people pay to be a homeowner. In Guildford, for example, rents have risen 9 per cent in a year, meaning that the £270 weekly cost of renting a two-bed home is just £22 cheaper than repayments on an 85 per cent LTV mortgage, at 6 per cent.

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Anyone tempted to step in to take advantage of these fast-rising rents should remember that, as Richard Donnell, says: “The closer you get to the cost of renting being 100 per cent that of buying, the more chance rents will come down.” That situation has now developed in Milton Keynes, where it would cost £178 to buy and £177 to rent: returns have dropped 4per cent in a year. Investors looking for a high-rent, high-cost-of-buying city in which to safely invest need to investigate their market thoroughly. The Hometrack data suggests that a good bet might be Oxford or Cambridge, where, despite double-digit growth, respectively the cost of renting is 72 per cent and 69 per cent that of buying.

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