According to the Association of Residential Agents’ (ARLA) latest quarterly survey, average rents in the private rented sector (PRS) have risen by an average of 4% for houses and 2% for flats in the three months to the end of February 2008.

Rental incomes have increased by over £3,000 a year for renting a house and £1,500 for renting a flat in Prime Central London. Rents have risen in the rest of the country too, from an average of £931 to £981 for houses and £619 to £664 for flats.

The survey showed that falling asset prices are leading to higher yields as well as increasing rents. Average returns for rented houses are up from 4.8% to 5%, while flats have risen from 4.9% to 5%.

Ian Potter, head of operations, said: “We are seeing the beginning of the inevitable. Whenever property prices soften or fall, rental demand, rents and yields all increase. As we begin a year of uncertainty in the sales market, it is inevitable that our member letting agents should report that they have more tenants than properties available for them.”

However, in the South East the average rent dropped from £1,390 to £1,361 a month for houses and from £930 to £882 for flats. Malcolm Harrison, spokesperson for ARLA, said: “This is the first time that this has happened and I put it down to seasonal factors. It is highly unlikely that this is a continuing trend thanks to softening house prices. It will pick up again in the next survey.”