Buy-to-let lending rose by 12% in the third quarter, according to recent data published by the Council of Mortgage Lenders, a view supported by ongoing demand for rental property against the backdrop of a dysfunctional owner-occupier market.

There were 26,900 buy-to-let loans advanced in the third quarter, worth £2.8 billion. This quarterly rise of 8% by volume and 12% by value is the second consecutive quarterly increase in lending. Compared to the third quarter of 2009, the volume of lending was up 14% and the value up 33%, from 23,700 and £2.1 billion respectively. Buy-to-let lending is low by historical standards - running at levels last seen in 2002 - and the market will likely continue to show growth into 2011.

At the end of September 2010, there were 1.29 million buy-to-let mortgages outstanding, an increase of 7% from the previous quarter. The proportion of loans in arrears of more than 1.5% of the balance remains broadly unchanged at 1.45%, while repossessions (at 0.12%) and the appointment of receivers of rent (at 0.10%) were also virtually unchanged from the previous quarter.

Buy-to-let demand appears likely to increase, which is unsurprising in an environment where the demand for rental property will be boosted by the access problems that first-time buyers face in the owner-occupier market.

Commenting on the figures, CML director general Michael Coogan said: "We would expect buy-to-let demand to pick up further if current rising rental trends continue and house prices remain broadly stable. However, there is short term uncertainty as a result of the unresolved debate on housing benefit and landlords response to new limits.

"The bigger question is whether there will be sufficient supply side capacity to meet that demand, as the number of buy-to-let lenders dwindled in the credit crunch after 2007 and is yet to be fully restored.

"However, it is clear that in a market where access to home-ownership has become more difficult, the private rental sector is experiencing, and will continue to benefit from, high levels of demand for good quality housing."