The latest housing market data from Your Move, the biggest national estate agent, will put a spring in the step of buy-to-let landlords. The figures for February show rents climbing, after a slow start to the year, and a 40 per cent leap in tenant inquiries, proving that demand could be outweighing supply after a glut of properties in the lettings market last year.

Savills, another estate agent, reports 43 per cent more properties available to let, compared with last year, almost entirely because of the rising number of reluctant landlords - homeowners who resort to letting their property when unable to sell. However, the number of rental properties is still down on the peak at the end of last year, when agents had three times the usual level available.

Jane Ingram, head of lettings at Savills, says: “The big story last year was the rise of reluctant landlords, but new instructions are tailing off. This is despite huge demand from renters, with rental inquiries up 85 per cent on this time last year, as buyers delay entering the market.”

This is good news for existing property investors who feared a significant slump in rental income. Cash-rich landlords with low levels of debt are taking advantage of the freefall in house prices and historically low interest rates to expand portfolios to soak up the increasing demand from first-time buyers blocked from the market.

But what about new investors? Until now, there has been little incentive to invest in property, as prices continue to slump and mortgage finance remains elusive.

Ms Ingram continues: “High loan-to-value ratios and expensive rates have blocked all but the most cash-rich investors from the market.”

The number of buy-to-let deals in the market has shrunk by 20 per cent in the past three months alone, almost two years after the housing bubble first popped. There were only 214 buy-to-let deals available this week, according to moneyfacts.co.uk, the financial website, against 3,662 at the height of the housing boom in 2007.

Nervous lenders continue to give mortgages only to those with large deposits. More than half of all buy-to-let deals available in 2007 were for up to 85 per cent of a property's value, but the maximum loan-to-value ratio available to landlords now is 75 per cent. The best deal for those with a 25 per cent deposit is the Allied Irish Bank term tracker, at four percentage points above base rate, giving a pay rate of 4.5 per cent, with a 1 per cent fee.

Other restrictions are becoming commmonplace. For example, lenders are demanding that rental income is up to 40 per cent more than the monthly mortgage repayments. They are also capping the number of properties that can be covered by a loan. Skipton Building Society even came close to blocking applications to buy flats, a sector in which rents and values have plummeted.

The successive cuts to interest rates have had little impact on the entry costs to buy-to-let investment. Interest rates on new mortgages are considerably higher than the base rate. For instance, Manchester Building Society has a term tracker at 4.59 points above base, giving a rate of 5.09 per cent, with a fee of 0.5 per cent.

However, many existing landlords have benefited from lower rates because buy-to-let mortgages usually revert to tracking the base rate at the end of their term. The result is that a large proportion of landlords have experienced a sharp fall in their monthly repayments.

In response, and in an attempt to run down its mortgage book, Mortgage Express is waiving early repayment charges for existing borrowers - the majority of whom are landlords. This may persuade some to switch lender, but most would be better off staying put. Borrowers who remain with Mortgage Express when their deals expire will revert to a rate of 1.75 points above base, giving a low rate of 2.25 per cent. Borrowers with Cheltenham & Gloucester, meanwhile, revert to a rate of 2.5 per cent.

This is little consolation to new investors. Ms Ingram believes that it could be many months before private investors return to property in big numbers. She says: “New buyers are tentatively returning to the market but financing remains problematic.”

In the longer term, however, there is plenty to be optimistic about, says Lucian Cook, director of residential research at Savills. “The inability of first-time buyers to raise deposits looks set to continue,” he says. “This should boost demand for private rental property and co-ownership or equity loan schemes. This presents a huge opportunity for investors in private rental stock and could not only underpin the recovery, but also secure the future of the private rental sector as an investment model.”

How to cut letting fees

Landlords who use traditional lettings agents waste thousands of pounds every year, according to research by smartlandlord.co.uk, the property services website. It warns property investors that high street agents charge about 12 per cent of the monthly rent for services often available for a lower price online.

Smartlandlord can market a property for less than £100, via websites such as rightmove.co.uk and propertyfinder.com. It has also attacked letting agents' fees, such as £200 for a tenancy agreement that can be downloaded free.

Keshav Thukaram, managing director of Smartlandlord, says: “Many landlords can't afford to sit back and let their property be managed by other people. They need to seize control if they want to optimise their returns.”