The acute shortage of rental property in London is driving landlords to pick and choose their tenants and in some cases ask for larger deposits, according to the agent Cluttons.

With the number of applicants competing for each property on the increase, many landlords find themselves in a position where they can select the tenant with the most secure employment prospects or those who are likely to cause the least wear and tear to the property.

"The days of simply providing ID and proof of income in order to secure the rental property of your choice are fast disappearing in central London. Competition is fierce for high quality rental properties and applicants are now discovering there is a pecking order in the queue. In some cases tenants are being required to pay eight weeks' rent as a deposit to allay the landlord's concerns over redundancy," says Lynn Hilton, partner for residential lettings at Cluttons.

"We are also seeing a sharp increase in gazumping in the lettings market, as well as a rise in tenants making best and final offers, as they compete for properties. This can result in agreed rents in the region of five to 10 per cent higher than the asking price. London’s landlords are enjoying the most favourable market they've seen in years."

The coming year is likely to be a buoyant one for the rental sector, according to many commentators. With the mortgage market remaining a closed shop to many first-time buyers, the pressure on the private rented sector is only likely to increase.

"This, coupled with the underlying demographics of increasing housing demand at a time when the supply of new homes is at an all time low, means that the current upward pressure on rents will continue well into 2011," says Neil Young, chief executive officer of private rented sector specialist the Young Group.

The latest figures from LSL show that nationally rents have increased by an average of 4.5 per cent in the past 12 months to almost £700 per month, and in London and the South East, where the housing pressure is greatest, rents are now 6.8 per cent higher than a year ago.

Findaproperty reports that average asking rents in London are now £1818 per month. The company’s central London office, covering property across transport zones one and two, has witnessed a marked increase in competing offers for property and the average void period is down to just two days across its hundreds of properties.

There is a word of caution, however, to both landlords and tenants. "As rentals are increasing, they need to ensure they do not run into difficulties with rental arrears. Tenants need to be realistic about their property expectations and not overstretch themselves. Equally, landlords make sure that tenants are being adequately referenced and credit checked in the first instance," said Young.