The gross advances of buy-to-let mortgages have been forecasted to increase to £25.6bn by 2014, according to Datamonitor.

The Datamonitor report forecasts that gross advances will remain flat during 2010 before rising to £15.8bn in 2012, £20.2bn in 2013 and £25.6bn by 2014. The Council of Mortgage Lenders’ figures show that buy-to-let gross advances totalled £8.5bn in 2009.

Nigel Terrington, chief executive of The Paragon Group, said: “Buy-to-let lending hit its lowest level since 2001 last year and the market is dominated by just two lenders. Investor demand has never been the issue - it has always been mortgage finance supply, which has been severely restricted since the closure of the wholesale funding markets.

“There are a number of socio-economic and demographic factors that will drive demand for rented property in the future, such as inward migration, the rate of new household formation and the composition of those households, growing student numbers and a greater propensity to rent amongst young people. The private rented sector needs to expand to cater for these growing markets, yet it is being inhibited by the lack of available finance.”

With the stabilisation of house prices, investor confidence should increase especially considering that the demand for rental property amongst tenants is rising faster than supply and since the beginning of 2009, a higher number of landlords have purchased rather than sold property.