Four out of 10 landlords in the private rented sector are planning to increase their rents to tenants during the next 12 months on the back of strong levels of tenant demand, according to the Paragon Group.

Their latest research shows that 41% of landlords plan to increase rents during 2011, with 55% planning to keep rents at 2010 levels, while only 4% of landlords are aiming to reduce the rents they charge. Almost a third of landlords surveyed (30.7%) aim to increase rents by up to 4% of the current value, with 10% aiming to increase the rent they charge tenants by between 4% and 8%.

Rents in the private rented sector have risen steadily over the last year with the Royal Institution of Chartered Surveyors (RICS) reporting that more surveyors recorded rent increases than falls in each of the first three quarters of the year. The most recent RICS Residential Lettings Q3 Survey showed that 34% more surveyors were expecting a rise in rents than a fall during the fourth quarter of 2010.

Landlords’ expectations for rental inflation are mirrored by their view of likely tenant demand over the next 12 months. Just under half (45%) of landlords believe tenant demand will continue to grow during the year, with 44% forecasting that it will stabilise.

Nigel Terrington, Paragon Group chief executive, said: “Landlords are in a strong position. Tenant demand has risen faster than supply during 2010 and that is expected to continue well into 2011. This is reflected in landlords’ expectations of future levels of tenant demand and also the rent they are planning to charge for their properties.

“There continues to be a lack of finance available in the UK mortgage market, meaning that many potential buyers are opting to rent instead. Meanwhile, many of the factors that have driven tenant demand in recent years, such as positive net migration, high student numbers and people preferring to buy later in life, are continuing.”