The key points for this survey are:

• Growth in new instructions outpace growth in tenant demand
• Rents fall for the first time since April 2003 while rental expectations drop to the lowest level on record
• Gross yields rise as house price falls outpace rental falls

In the three months to October, continued falls in houses prices coupled with further tightening in mortgage lending conditions has turned more would be buyers and sellers to the rental market.

Those who are unable to obtain mortgage finance are renting. Meanwhile, would-be home sellers are opting to bide their time by catering for the increased demand rather than sell at distressed prices.

Indeed, new landlord instructions outpaced supply for the second consecutive quarter, and the margin between the two widened considerably as relatively more disaffected sellers became landlords.

27% more surveyors reported a rise in new tenant lettings than a fall, compared to 36% in July.

Meanwhile, 56% more surveyors reported a rise in new landlord instructions than a fall, compared to 45% in July.

The rise in supply of new lettings relative to demand has led rental levels decline for the first time since April 2003.

However, the falls to date appear to have been quite modest. As a result, against the backdrop of relatively sharper falls in house prices, gross yields continue to rise.

Still relatively elevated rental levels, against the backdrop the wider stagnation in the sales market, is causing increasing numbers of landlords to remain committed to the lettings market.

Indeed, the proportion of landlords opting to sell their property at the expiry of tenant lease fell to 0.5%, the lowest on record (2003).

Rental expectations turned negative for the first time since July 2002 and have also fallen to the lowest level on record (2000).

From a sectoral perspective, houses outperformed flats on the activity side, although the latter area outperformed the former with respect to rents (both past and expected). London was the only region where tenant demand fell outright.

The strongest growth in new instructions took place in the Midlands and Wales.

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Find previous Residential Lettings surveys at www.rics.org/rls