Average rents increased by 0.9% in England and Wales during June 2012 to £718 per month, the third month in a row they have risen and to a level just under the record high set in October 2011 of £720 pcm, according to the latest Buy-to-Let Index from LSL Property Services.

On a monthly basis rents increased in all regions bar one with Wales seeing the highest rise of 2%, followed by the North West and West Midlands where rents rose by 1.7%, with the fall coming in the South West as rents decreased by 0.3%. London rents increased 0.9% to £1,047 pcm, the second month in succession where rents have hit a new high.

David Brown, commercial director of LSL, said: “The sheer weight of tenant demand continues to push up rents across the country. Lending criteria remains tight and the number of mortgages given to first-time buyers is still a long way from the level seen before the credit crunch. With higher rents and the growing cost of living eroding how much tenants can save towards the large deposits now required to buy, it’s no surprise to see the private rented sector swelling by 262,000 households a year.”

“Shorter-term factors were also at play in June. The rental market tends to see a flurry of activity at this time of year as tenants look to move before the onset of summer holidays, but this trend has been exacerbated, especially in London, by tenants moving with urgency to secure properties ahead of the disruption of the Olympics.”

London remains the region with the fastest annual rental growth. Rents in the capital climbed 4%, with tenants paying an average of £41 extra per month compared to June 2011. The South East had the second highest rental inflation, with rents climbing 3.6% compared to a year ago. On an annual basis, rents remained in negative territory in just the East Midlands after the North East region and Wales returned to growth.

Landlords saw the average total annual return on a rental property rise to 5.4% in June 2012, up from 5.2% in May. This represents an average return of £8,884, with rental income of £7,719 and a capital gain of £1,166.

Brown said: “Property prices have stabilised over the past quarter and that’s played into the hands of investors, boosting their returns. Stronger capital gains mean London landlords are now seeing an average annual return £27,005, more than three times the average for England and Wales in cash terms. However, while capital gains are a welcome short-term bonus for landlords, it is the strong rental yields that are drawing in long-term investors.”