41% of landlords have reported seeing an increase in tenant demand over the last three months, but confidence has fallen significantly, according to the latest BM Solutions buy-to-let quarterly index.

It found that tenant demand has increased in each of the last four quarters, with just 5% of landlords reporting seeing demand weakening to any extent.

The quarterly BM Solutions / BDRC Continental Landlord Panel also established that tenant demand has continued to increase in the East of England, where 52% of landlords report an increase in demand in the last three months. The largest quarterly increase was seen in the East Midlands (up 12 percentage points).

At the other end of the scale, the South West and North East saw the largest drop in landlords reporting increased demand in the last quarter, with the number seeing an increase in tenant demand down eight percentage points on Q2 2015.

Confidence in the UK’s financial market has fallen, with a net 25% reporting confidence in the outlook for the next three months compared to 37% in Q2. Landlords also report a dip in confidence in the private rental sector with 34% expressing confidence in the UK private rental sector compared to 59% in Q2 2015.

61% of landlords intend to live off the rental income their portfolio generates when they retire. A further 36% will make a decision based on the market when they reach retirement.

The incidence of rental voids increased in the last quarter, with 35% of landlords experiencing a void period in Q3 (compared to 29% in the preceding two quarters). The average rental yield achieved fell to its lowest level for five years in Q1 (5.7%), and in Q3 it fell back to 5.6%.

At a regional level landlords in Yorkshire & Humber and Wales achieved the highest average rental yield of 6.1%, with those letting properties in Scotland (5.1%) and Outer London 4.8% the lowest.

Phil Rickards, head of BM Solutions, said: “There has clearly been a spotlight shining on the buy-to-let market and private rental sector for most of 2015. Landlord confidence in the outlooks for the private rental sector as a whole and landlord’s own lettings business have seen statistically significant declines when benchmarked against Q3 2014.

“However, the market is still holding up, and at the same time four in 10 landlords report demand has increased in the areas where they hold properties during the last quarter, and yields remain strong. There’s no doubting 2016 looks like a challenging year ahead however I take comfort in the fact there’s still a need for a strong private rental sector along with good quality housing to support demand.”