The percentage of landlords selling their properties is at a three-year high, according to the RICS…

The Royal Institution of Chartered Surveyors (Rics) blamed the move on previous interest rate rises and a more cautious stance from lenders. It said new landlord instructions, an important indicator of the strength of the buy-to-let market, also dipped in the quarter to the end of October.

Yields on flats continue to fall thanks to the oversupply of such properties, and some analysts fear a slowdown in the buy-to-let sector could exacerbate existing problems in the wider property market.

Rics' latest Lettings Survey revealed that the proportion of landlords selling properties when tenants' leases expire rose to 6.5% from 6.1%, the third consecutive increase and the highest level since January 2005. At the same time, new landlord instructions fell to a balance of plus 11%, down from 19% in the previous quarter.

Rents still rising

Rics housing spokesman Jeremy Leaf commented: “Potential investors are dissuaded by the current economic uncertainty and a more cautious approach from banks and building societies. A combination of tightening lending criteria and successive interest rate rises has started to hit the buy-to-let market," said Rics housing spokesperson Jeremy Leaf.

He warned proposed tax changes could prompt an even larger exodus in 2008: "With the drop in capital gains tax due in April next year, many landlords will resist selling until the spring," he added.

More broadly the survey found that although rents are still rising, the rate of increase is slowing. Rics said overall yields remained broadly unchanged, but highlighted an increasing gulf between houses and flats. While the yield on houses rose for the second successive quarter, the yield on flats fell for the fifth consecutive quarter, thanks largely to an oversupply of such properties.