According to the Royal Institute of Chartered Surveyors’ (RICS) lettings survey, the buy-to-let market has seen a sharp slowdown due to the increasing gap between rental income and the cost of debt.

The report shows a dramatic rise in the number of landlords selling their properties, 5.2%, which is up from 4.1% in January 2007. This is the highest level for two years. RICS says many landlords are selling in light of falling gross yields and rising borrowing costs.

Gross yields fell for the third consecutive quarter, with the pace of decline accelerating at its fastest rate since July 2004. The sharp fall in yields reflects strong house price inflation coupled with slowing rental growth.

“Housebuyers are returning to the market to avoid rising borrowing costs, signalling a drop in demand for rental property. With more supply on the market due to a rush to avoid the upfront costs of Home Information Packs, which now seems a little premature, buyers have found the market less tight than expected”, said Jeremy Leaf, RICS spokesperson.

“Rising borrowing costs and a subsequent drop in yields have also contributed to a worrying time for landlords. Interest rate rises later in the year will have a further dampening effect, but the underlying strength of the economy and an active housing market should ensure a soft landing for many.”