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The combined effect of continued tenant demand and an under supply of rental property has prompted rents to rise for the second consecutive quarter, according to the Royal Institution of Chartered Surveyors.

The latest RICS lettings survey reveals that 27% more surveyors reported a rise in rents than a fall in Q2 which compares to 2009 when an over supply of rental stock resulted in 29% more surveyors reporting falling not rising rents.

Accordingly, 26% more surveyors reported a rise in demand for property rather than a fall, which was the second consecutive quarter that lettings demand has risen at a pace above the long run average.

RICS attributes this to prospective buyers' continued difficulty in securing mortgage finance, worries over a double dip in the housing market and the large deposits required by lenders.

Demand increased across all regions, but was strongest in London and the East of England.

New supply of rental property to the market remains low and has now fallen for four consecutive quarters, albeit at a slightly slower pace. The net balance of surveyors reporting a fall in landlord instructions in June was -6, in comparison to a net balance of -12 in the previous quarter.

Nevertheless, the majority of existing landlords appear determined to remain in the market, with just 4.1 per cent declaring an intention to sell their properties at the end of a tenancy agreement.

RICS spokesperson James Scott-Lee says: "Supply of lettings property continued to fall in the three months to July although at the slowest pace in a year which amid rising tenant demand has helped propel rents higher for the second consecutive quarter.

"Existing landlords keen to expand their portfolio may still be struggling to access the necessary finance despite improved market conditions.

"However, there is a possibility the lettings market could face a modest increase in supply in the coming months. The latest survey shows a lack of funding has stifled demand from buyers which may cause some moderation to rents as more opt to let than sell."

The figures come as Countrywide Residential Lettings reveals unprecedented tenant demand. 

John Hards, co-managing director of the business, says: "In Q2 we saw over 50,000 new tenants applications and in July alone we saw over 20,000 new tenants. 

"Whilst we have seen a marginal increase in the number of rental properties entering the market, the demand from new tenants is a growing concern. If demand continues to rise at the same rate, the shortage of properties available will force more tenants onto waiting lists, which will further exacerbate the problem."

He adds: "The buy-to-let sector remains a good source of investment, however, the government needs to do more to incentivise new landlords in order to appease the current shortage of properties."

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