Rents have hit a two-year peak as homeseekers are forced to rent because they cannot raise the funds to buy a property.

Rents increased to equal their September 2008 peak of £686 – up 1.4% or £12 a month on those in July.

Renters have to pay an average 2.5% more than at the same time last year for the same property, with today’s figures following seven consecutive months of price rises, says research by LSL Property Services.

The group owns several big name letting agent brands like Your Move and Reeds Rains.

Deciding to rent instead of buying is blamed on a combination of factors, including concerns of an impending house price crash, worries about job stability; government spending cuts and limited availability of mortgage.

“All these factors have shifted the power back into the hands of landlords, driving up rents,” said David Brown, commercial director of LSL Property Services.

Rent is highest in the South East (up 2.8%) and London (up 2%).

Not everywhere is experiencing a boom as landlords in the West Midlands and Wales reduced rent by 1.5% and 1% respectively.

August also showed a rise in rent arrears, with tenants owing a total of £266.3 million, or 11.3% of all rent in the UK. This is up 25% from £212.9 million (or 9.2%) in July.

The increase in tenant arrears was worst in the North East, where unpaid rent rose from 10% in July to 14.4% in August – the biggest increase of all the regions.

“Rents have been rising all throughout this year but they haven’t affected tenant arrears until this month,” commented Mr Brown

“But now arrears are up – in fact they are rocketing in the North East. Tenants everywhere are only going to come under further pressure as the cuts keeps coming, but it’s possible we’ll see a significant north-south divide develop.”

The rise in rents alongside static house prices for the past three months means that an investor buying property now could expect a total annual return of 9.3%, the equivalent of £15,711.