Buy-to-let lending has soared by 32% year-on-year, according to the Council of Mortgage Lenders (CML).
New lending in the first three months of this year reached £3.7 billion, with 32,300 new loans advanced. Despite this annual rise, buy-to-let lending still stands at only a third of levels seen during the peak in 2007.
However, on a quarter-by-quarter basis, buy-to-let lending was down by 5% compared to the last three months of 2011.
Buy-to-let mortgages made up around 12.8% of the total value of outstanding mortgages at the end of March, up from 12.6% at the end of 2011. The total number of buy-to-let mortgages stands at more than 1.4 million, worth £159.4 billion.
Meanwhile, the number of buy-to-let mortgages in arrears fell to around 1.7% of all mortgages in the first three months of 2012, while the repossession rate stands at 0.12%, broadly similar to the previous five quarters.
The buy-to-let market continues to go from strength to strength, with 71% of landlords feeling positive about the prospects for the market, according to specialist lender CHL Mortgages. Only 5% of landlords feel negative about the sector.
Paul Smee, director general of the CML, comments: "Even though buy-to-let lending is running at only around a third of its peak levels, the sector is continuing its gradual expansion. It has become an important part of the overall landscape of housing provision in the UK."
Jonathan Samuels, chief executive of Dragonfly Property Finance, expects the buy-to-let market to continue to grow.
"A shortage of rental stock and strong demand from the growing number of forced tenants will keep driving the sector forward. There is a lot of capacity in this market yet," he says.
Samuels adds: "Investors are looking for value and they're looking for reduced risk. With property prices falling and mainstream lenders becoming increasingly risk-averse on owner-occupier loans, they see buy-to-let as a pretty stable place to be."
However, he does warn that investors should only enter the market if they are "prepared for the up-cycle in interest rates". "Do your research, know your market and hedge against rising rates. After all, the only way for the base rate is up," he says.
The booming buy-to-let sector is in part due to rising rents across the UK. The average rent now stands at £868 per month, up 1% year-on-year, according to property website Findaproperty.com. However, average rents in London soared by 9.3% over the year, with the average tenant in the capital shelling out £2,152 each month.
Samantha Baden, property analyst at Findaproperty.com, says that 2012 "started on a bright note" for landlords, with stable demand and rising rents.
She adds: "The relationship between demand and supply will continue to be a major driver of rental prices, however tenants are hoping for an end to rising costs, and improved affordability."
Tracey Kellett, managing director of UK buying agents BDI Home Finders, says that the rental market is in "rude health".
"In fact, it's the only area of the property market that is growing and this doesn't look set to change in the immediate future," she says, adding that the shortage of available homes will ensure rents remain high.
This feature was written for our sister website Money Observer