Rental growth is at its highest ever level according to research by Paragon Mortgages.

Its latest survey of small scale and professional buy-to-let landlords indicates that 46% believe that achievable rent levels have increased over the last six months, while a further 51% believe that rent levels are stable.

Paragon’s monthly buy-to-let index shows that, on average, rental incomes have increased by 8.2% over the last quarter, and 1.6% over the last month, fuelled by growing tenant demand. Increased rents are expected to result in better returns, and on average landlords predict that net returns will rise over the next 12 months, from 4.3% to 4.5%.

With interest rates almost certain to rise this week, it is likely that people will hold off purchasing homes until borrowing becomes more affordable, and push tenant demand further.

John Heron, managing director of Paragon Mortgages, said: “Demand for private rented property is high, fuelling continued growth in achievable rent levels. The economic environment as well as rising divorce rates, inward migration and an expanding student population, mean that an increasing number of people require rented accommodation, and this is driving rents up. These changing social and demographic trends are influences that will continue to fuel the market over the long term and landlords are confident in the sustained growth of rental levels and net returns, underpinning the ongoing increase in the number of buy-to-let investors.”