Rents are rising at their fastest rate for over three years, says the latest research from RICS (Royal Institution of Chartered Surveyors).

The rent increases are due to rising tenant demand, which is outpacing newly available rental properties in the market. 23 percent more surveyors report a rise than a fall in tenant demand over the past three months, a 9 percent increase since July.

The rise in demand is a result of interest rate rises. Potential buyers are opting to rent, sitting out the uncertainty currently characterising the housing market. There has also been a slowdown in rented property available as the buy-to-let boom tails off.

Rental demand for both flats and houses is up on the same quarter last year by 23 and 22 percent respectively. Private sector tenants are dominating the market, accounting for 81 percent of lettings. Corporate tenants account for 9 percent of the market, down from 11 percent last quarter.

All regions have reported an increase in demand for rented properties. London saw the greatest rises in demand with the South West not far behind. The average price for a two-bed flat in London is currently £1517 per calendar month. These are also the areas experiencing the greatest decline in house prices, according to the latest RICS housing market survey (15th November).

Gross capital yields are beginning to level out. Yields rose in London for the first time since April 2001. All other regions have shown a marginal fall.

RICS spokesperson Jeremy Leaf says: "There is definitely an increase in demand, particularly at the lower end of the market. Uncertainty about market prospects and poor affordability mean that people are opting to rent."

"Sellers and agents are facing a different breed of buyer. Enthusiastic buyers keen not to miss out on getting a foot on the property ladder have gone. Now the attitude of ‘why rush?’ is influencing demand for rental property."