THERE was an increase in the number of people proposing to let properties in the first quarter of this year.

Owners experiencing difficulty selling their properties in the south east have turned to the rental market to take advantage of rising yields, according to the Royal Institution of Chartered Surveyors (RICS) Lettings Survey, published a fortnight ago.

The number of south east chartered surveyors reporting a rise in new landlord instructions (an indicator of supply), increased at the fastest pace since January last year, to

10 per cent, compared to minus 13 in the previous quarter.

A significant drop in demand in the housing market has pushed sellers back into the rental market. Many are taking advantage of rising rental yields while they wait for the effect of the credit crunch to abate.

Landlords are reaping the benefits of a collapse in demand in the housing market and the number of surveyors reporting a rise in gross yields is at its highest level in the survey's history.

Nationwide, 23 per cent more chartered surveyors reported a rise in gross yields up from 5 per cent, with 30 per cent more south east chartered surveyors reporting a rise, up from 12 per cent in January.

Growth in tenant demand remained more or less stable in the south east, with 34 per cent more chartered surveyors reporting a rise rather than a fall in tenant lettings, which are up from 33 per cent in the last quarter.

Nationally, 28 per cent reported a rise, up from 17 per cent.

Significantly, demand for both family homes and flats increased as many would-be buyers found themselves unable to step onto the property ladder.

Rising yields may have stopped the recent retreat of landlords from the market.

The percentage of landlords selling their properties when tenant leases expire fell from 4.6 per cent to 4.2 per cent.

Surveyors report rents are still rising and rental expectations remain at more than double the survey's long run average. Key areas enjoying rental growth are the south east and south west.

Trevor Hines, RICS south east spokesperson, said: "The sales market's loss is the lettings market's gain.

"Some would-be sellers are retreating from selling and letting or reletting their properties as they wait for mortgage lenders to offer buyers more favourable lending criteria.

"While transaction numbers in the sales market are weak, many are taking advantage of rising rents and yields in the private lettings sector."

He added: "With rental expectations high, landlords will continue to enjoy this increasingly lucrative market.

"Fears a change in capital gains tax would bring a new wave of sellers have, to date, not been realised."