The number of buy-to-let properties soared by 84,000 in 2011, according to the Council of Mortgage Lenders.
Over the last three months of 2011, a total of 34,800 buy-to-let mortgages, with a total value of £4 billion, were advanced, according to figures from the trade body.
Year-on-year, it marks a jump from 26,300 loans given in the fourth quarter of 2010, worth £2.9 billion.
Despite the recent spike, the market is still far off its peak in the third quarter of 2007, when 93,000 loans were advanced, worth £12.7 billion.
Buy-to-let mortgages account for nearly 13 per cent of the total outstanding value of mortgages in the UK.
Paul Smee, director general at the Council of Mortgage Lenders, says that as demand for rented property "remains high, rationale for buy-to-let remains strong", adding there is "little reason" to doubt the positive outlook for the sector.
"These figures do not suggest that buy-to-let is crowding out first-time buyers; more that it is performing a really important role within the overall housing market," he says.
He adds: "The benefits of the availability of good quality, private rented housing should not be overlooked, especially as there are many households which need the flexibility and mobility that the private rented sector is well-placed to provide."
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Jonathan Samuels, chief executive of lender Dragonfly Property Finance, comments that the buy-to-let sector is one of the "few beneficiaries" in the current economic environment.
"Buy-to-let is being driven by the weakness of the economy and the continued caution of high street lenders at higher loan-to-value ratios," he says. "Consumers are wary about buying and lenders are wary about lending. The result is soaring demand for rental property, which is pushing yields ever higher."
Others are more cautious on the sector, warning that the dearth of rental properties cannot cope with demand from tenants.
Matt Hutchinson, director of UK house share website spareroom.co.uk, says first-time buyers are being hit the hardest due to the lack of mortgage finance.
"The cruel irony is that people are also being trapped in the rental market by rising rents," he adds. "With renters staying in properties for longer, there is a lack of old stock coming back onto the market, which is affecting the supply-demand balance."
Hutchinson also warns against greedy landlords pricing good tenants out of the market.
"Landlords should weigh up the benefits of retaining reliable tenants against the short-term benefits of hiking rents to take advantage of a booming rental market," he says. "The last thing any landlord wants is rental void periods, and if that means holding off imposing rent rises on current tenants, or even dropping the rent a little, then in the longer term that may be a better course of action."
This article was written for our sister website Money Observer