According to the latest research from the Association of Residential Letting Agents (ARLA) - in the fourth quarter 2010, some 40% of ARLA members reported an increase in tenants who were struggling to meet rental payments in the preceding six months - a rise from 35.9% recorded in Q3 2010.

This is the first time the number has increased in 18 months, suggesting that job losses and pay cuts are beginning to take hold, causing some tenants to have difficulties with their finances.

The situation was least noticeable in central London, where just under a third (27.9%) of members reported an increase, compared with the rest of the UK (46.4%).

Ian Potter, Operations Manager at ARLA, said: "At the beginning of last year we predicted that the number of tenants having difficulties paying rent would increase and unfortunately, this seems to be the case today.

"It is a situation which can have serious repercussions throughout the Private Rented Sector as, without rental income, landlords may also have problems paying their mortgages. At worst, this trend may result in a rise in repossessions.

"While it is difficult for landlords to predict whether current or prospective tenants will hit financial difficulties, our research highlights the importance for landlords or their agents to implement a thorough selection process and to conduct reference checks on potential tenants - and to also consider the benefits of rental protection insurance.

ARLAs research also showed a rise in the number of tenants haggling with landlords over rents, from 44.5% to 47.1%, further indicating the financial pressures on tenants.