As house prices fall and the mortgage drought prevents people from buying, frustrated homeowners are choosing to let their properties rather than sell them at a discount, and are renting other homes elsewhere.

Figures this week from the Royal Institution of Chartered Surveyors (RICS) indicate that the number of people letting their properties has increased at its fastest rate since the survey began in 1998. “Established investors have been reaping the benefits of the housing downturn for some time,” explains James Scott-Lee, a spokesman for RICS. “They will continue to do so in the short term. However, ever-increasing supply could have an impact on rental growth as tenant options increase.”

The effect of the new supply of homes on rent is particularly strong in London. Knight Frank reports that tenant demand is up 25 per cent in a year, but the supply of homes has increased by 35 per cent. Liam Bailey, its head of research, predicts that rents in London, which had been rising by as much as 7.6per cent in prime postcodes in the year to June, will drop 10per cent this year.

Savills reports that rents have already fallen in some postcodes, and are down 10 per cent already in Docklands, an area of high supply. Cluttons reports that rents are down 5 per cent in South Kensington, Chelsea and Knightsbridge.

The prediction of falling rents comes just as buy-to-let investors face difficulty in securing competitive mortgage deals and are grappling with more complex and costly tenancy laws. The Government already requires landlords to protect tenants' deposits, and from October energy performance certificates on rental properties will be compulsory. The Law Commission delivered final recommendations to Parliament this month on proposed buy-to-let reform, which would require property inspections and membership of a self-regulation scheme. Should they be adopted, the new rules may be made compulsory as early as next year.

Figures from moneysupermarket.com show that the number of buy-to-let mortgages available has fallen in the past year from 4,384 to 307. Those left require larger deposits and charge increased interest rates. This means that landlords are under pressure to increase rents to counter the shortfall. Lynsey Sweales, a director of the mortgage broker The Money Centre, says: “New mortgage deals are being done, but these are by the savvy landlords who have put money away to use as a cushion for these hard times.”

When The Money Centre analysed the buy-to-let market, 82 per cent of the investors surveyed said that they would keep their existing properties. And the more experienced landlords see buying opportunities even in these conditions: 16 per cent are in the process of purchasing further buy-to-let property; for investors who already own more than 20 properties, the figure is 40 per cent.

'Know your area'

Stephanie Traynor, pictured, entered the buy-to-let market six years ago. “I used to run my own business and didn't have a pension,” she admits. “The business collapsed and I had little money to show for it.” She then went to work in sales and earned some handsome commissions, which she decided to invest in property. “I bought four properties and sold one on very quickly at a good profit.”

All three of Traynor's properties are studios or one-bedroom flats, which she finds an easy letting option, in the area around Eastbourne and Brighton. She admits that she has been lucky as there has never been a time when they were empty. One was bought with a sitting tenant, a disabled man, who is still in the property. Traynor is not looking to expand her portfolio, however. “I'm happy with the three I have got,” she says.

She advises new landlords to have realistic expectations and to keep to an area that they know well. “Try and get as much information on the area and type of property you are looking to invest in,” she suggests.

“There is also the extra burden of a lot of new legislation for landlords, which you need to keep a handle on.”

'Treat it like a business'

Michael McVeigh has played the buy-to-let market very well. He bought his first property four years ago with the aid of his mother, Kathleen, who saw it as a chance to supplement her pension. They clubbed together and bought another four properties, each time with a 15per cent deposit. Property prices were then escalating and McVeigh wisely chose to take out equity in the property at various intervals by remortgaging and putting the money in the bank to help to cover any rental voids.

“I only invested in an area I know very well - Rotherham in South Yorkshire - and chose to buy houses close to a very good comprehensive school, which has attracted families as tenants, who tend to stay longer,” he says.

He now owns 21 buy-to-let properties and is in the process of buying three more. “Newer landlords are finding it difficult to finance buying property, so competition is reduced,” he says.

His advice to new landlords is to treat buy-to-let like a business. “It isn't like other investments, it is very hands-on. There will be ups as well as downs, but you really have to be in it for the long term. Property investment is no longer a get-rich-quick scheme.”

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