The number of properties coming onto the market to let has fallen to its slowest pace since the second quarter of 2005, suggesting that buy-to-let investors have become more cautious as a result of the recent interest rate rise.

RICS report that 6% more Chartered Surveyors reported a rise than a fall in instructions to let property, compared to 13% in the last quarter. While only 9% more chartered surveyors suggested the number of instructions to let flats had risen compared to 19% in the previous quarter.

Demand for rental accommodation remains solid reflecting a combination of factors, including a strong economy and rising migration, especially from Eastern Europe, according to Chartered Surveyors.

Gross rental yields fell for the first time in two years, as house prices rose faster than rents, squeezing income investors. Gross yields were 4.6% in October compared to 4.8% the same time last year.

RICS spokesperson Jeremy Leaf commented: "The recent interest rate increases have painted the buy-to-let market as a less than favourable investment. With profit margins potentially reduced, affordability conditions could bite hard into investor’s pockets and push up rents if interest rates rise further in 2007.

"But investors continue to express a high level of confidence in the longer-term buy-to-let market as selling activity remains low. With interest rates still relatively low and the economy gaining steam, first-time buyers are again placing a tentative toe in the property market."