First time buyers are being squeezed out of the housing market by buy-to-let investors who become the landlords of those who would otherwise be owner-occupiers, according to the latest survey of Britain’s rental market from the Royal Institution of Chartered Surveyors.

Tenant demand for rental property is strengthening with demand for houses in particular at its strongest for three years. A net 21 percent of RICS members report rises in the number of house lettings, up from 13 percent in the previous quarter. The rental market for flats remains firm.

The strength of demand is a reflection of the fact that would-be first time buyers are being kept out of the housing market, many of whom have no choice but to rent.

Demand is rising in most regions. On a seasonally adjusted basis, 32 percent more surveyors report a rise in demand than a fall, up from 23 percent in the previous quarter. The strongest demand was recorded in the Midlands and Wales. Activity has picked up in London.

The improving economy is encouraging an increase in corporate lettings, particularly in London where they account for 27 percent of all lettings. This figure is the highest for two years.

Institutional interest in the residential property market has grown over the last year. Some surveyors believe this trend is set to continue, particularly if new property investment vehicles (REITS) are introduced in 2005.

On average across Britain rents have increased modestly for the last three quarters, with the trend in rents remaining relatively weak after prolonged falls. A net 12 percent more surveyors reported a rise in rents than a fall, up from 5 percent in October last year.

Chartered surveyor and RICS residential lettings spokesman, Jeremy Leaf, said: “As ever, the owner-occupier and lettings markets remain strongly intertwined; what happens in one impacts on the other. Many people are being pushed into renting as owner-occupation becomes less affordable. It is a harsh reality that the money which would-be first time buyers pay in rent is paying off the landlord’s mortgage and not their own.

”Although rents remain fairly low, private investors seem undeterred, focussing on the long-term return from their capital investment. These type of investors are often responsible for bringing what may have been semi-derelict or uninhabitable properties back into occupation. However, the outlook for rents is strengthening and the profile of renters is continually changing. We are seeing traditional renters being joined by people who are between properties, eager to break the chain in the house selling and buying process.”