The average rent in England and Wales increased by 0.5% in May to reach £696, according to the latest Buy-to-Let Index from LSL Property Services.
The data shows rents reached a record high in May after four consecutive monthly increases, and rose by 4.4% compared to May 2010.
Meanwhile, the average yield remained at a record high of 5.1% in May.
Between April and May, rents increased fastest in the East of England and the North East, rising by 1.4% and 1.1% respectively.
Rents fell in just three regions: the West Midlands, by 0.7%, the South West, by 0.6%, and Wales, by 0.2%.
David Brown, commercial director at LSL Property Services, says tenant demand has been especially high in recent months.
He says: “The rocketing cost of living, combined with the ongoing difficulty first-time buyers are experiencing in obtaining a mortgage, is increasing the number reliant on rental accommodation.
“With the fierce competition for homes, rental gazumping is becoming more commonplace and properties are being let beyond asking price, putting further upwards pressure on the market.
“For tenants who are unable to buy, renting is becoming less affordable as demand booms. Rents are increasing at twice the rate of wages.”
The total annual return on a rental property now stands at 2.9% with high yields offset against a slight annual decline in rental property prices.
Brown says: “The values of rented properties are slightly lower than a year ago, and this is reining in the total returns. However, with rental income continuing to escalate, landlords are still looking at a healthy return on their investment – especially on long-term investments.”
Tenant arrears decreased in May, with 11.5% of all UK rent unpaid or late by the end of the month, compared to 11.8% the previous month, but well above the 10.6% average for 2010.
Unpaid rent totalled £277m across the UK in May, a decrease of 2.5% from the £284m unpaid in April.
Brown says: “Arrears fell away slightly after an abnormal April, which was distorted by the additional bank holiday at the end of the month. Nevertheless, their elevated level in a more normal month should provide a note of caution for landlords.
“It is critical that landlords notice and react quickly to any potential payment problems to prevent tenant arrears spiralling out of control.”