Landlord rents fell slightly in January, as a growing number of investors in the UK’s buy-to-let market pushed up supply, according to the latest Buy-to-Let Index from LSL Property Services plc.

In January, the average rent in England and Wales dropped by 0.3% to £682 per month and this is the second successive month rents have fallen. The average yield also fell slightly to 4.9% in January, as rents declined at a faster pace than rental property values.

David Brown, commercial director of LSL Property Services plc said: “The recent loosening in the buy-to-let mortgage market has boosted the supply of rental homes on the market, a crucial factor in the temporary drop in rents. In the last quarter of 2010, the number of buy-to-let loans leapt by 7% according to CML. With more products coming onto the market, there are signs that this trend is continuing into 2011, allowing a growing number of professional landlords to get onto the market – or broaden their portfolios - and take advantage of near record rental income and strong tenant demand. International investors, too, have played their part, looking to place their cash in UK bricks and mortar while yields look attractive and properties are affordable.”

Despite the slight decrease in rents, they are still 4% higher than a year ago – and are showing signs of renewed growth in several areas of the country. Rents in the East and West Midlands increased by 0.9% and 0.8% respectively, by 0.8% in Yorkshire and the Humber, and 0.2% in London. However, the overall drop was driven by larger falls in the East of England (-2.5%), Wales (-2.1%), the North West (-1%), alongside decreases of 0.4% in the South West and South East.

Brown said: “Although rents have fallen, the strength of the rental market cushioned the additional impact of winter. Fewer tenants tend to move in December and January – and many landlords will drop rents to avoid experiencing vacant properties. Despite the seasonal downturn, and the increase in supply, there remains healthy demand for property and rents are still £26pcm higher than last January.”

Richard Sexton, business development director of e.surv, said: “The buy to let market is looking more and more attractive to foreign and domestic cash investors who are unconstrained by the availability of mortgage finance compared to domestic buyers. They tend to use personal funds or private banks, so they are detached from the main buyers’ market. For the rest of us, LTV’s remain stable, if low, at 59%, and this will continue to act as an iron chain holding back the aspirations of British first time buyers. This market is something of a virtuous circle for foreign investors.

“Yes, rental prices are in a temporary seasonal lull – and higher arrears reflect broader concerns about tenant’s personal finances - but the year on year stats show how well rents are performing and such marginal loss of capital is unlikely to put them off. They will continue to be seduced by high rental incomes, strong tenant demand, and an underlying weakness in housing prices.”