The financial stability of the rental market has been rocked by a surge in demand at a time when supply is limited, new research has suggested.

The Association of Residential Letting Agents (ARLA) said fewer homes are available to let but demand for rented accommodation is rising, as economic struggles mean mortgages are currently unattractive or have financially demanding limitations.

Customers are failing to raise the deposits needed to meet strict lending criteria of banks and building societies, forcing them to rent instead.

Ian Potter, ARLA’s Operations Manager, said: "New tenants include those homeowners who were forced to sell their home during the last year either due to financial instability or a job move.

"And many people now in a position to buy are struggling to find the right property, as there is also a shortage of both properties for sale and realistic mortgages."

Around 41% of letting agents said there were more potential tenants than properties in the final quarter of 2009, up from 24% in the previous quarter.

ARLA claims that, as the residential market starts witnessing increasing prices, ‘accidental landlords’, those who let out spare rooms after failing to sell their homes, have massively decreased and available properties are beginning to dry up.

Currently, 54% of letting agents claim consumers are being forced to rent a property rather than buy one.

"This rise in tenants is a positive sign for the industry, as it indicates increased market movement," continued Mr Potter. “But without significant government support, the sector will likely struggle."