Swirly carpets and dripping bath taps? Not any more...

Why rent when you can buy, we chanted in the 1990s. Now, it's not such a bad option.

Rather like the voters at a general election, floating tenants can change the picture of the lettings market in a very short period of time. Apart from the party faithful, who will always prefer to rent along with others who have no choice because of work or lifestyle, there are those who react to economic factors and tread water by renting.

Rather like the voters at a general election, floating tenants can change the picture of the lettings market in a very short period of time. Apart from the party faithful, who will always prefer to rent along with others who have no choice because of work or lifestyle, there are those who react to economic factors and tread water by renting.

At present, the middle to top of the market is making a recovery from its low point six months ago, boosted by a growing demand from those who are put off from buying by high property values, particularly in central London.

They may have sold when prices were racing and are now biding their time, or they may be first-time buyers wary of committing themselves to the costs of purchase. Richard Donnell, of FPD Savills Research, says that the warnings of the market overheating and interest rates rising is causing some uncertainty among would-be purchasers. "The costs of renting and purchasing are much closer than they have been for a long time. It was about 20 per cent more expensive to rent than buy but capital values and increased mortgage payments have narrowed that gap."

The erratic market could not be more marked than in the Putney office of Foxtons, the London estate agency. At the start of this year, the normally thriving business from South Africans wanting to rent fell by half, an indication of how unforeseen blips can lead to a sudden famine for landlords and more choice for tenants. Tim Hyatt, lettings director of Foxtons, says this is why it is important to keep in touch with landlords. "They need to know that negotiators are working to fill the property and what the feedback is. It may be necessary to be flexible on the rent or the place may need recarpeting. Tenants at all levels demand a very high standard."

While they may be able to rent a one-bedroom flat near Tooting Bec Underground for £185 a week, they do not expect poor quality fittings, any more than the person renting a similar flat in South Kensington or Islington for £250. Although Foxtons has seen the overall number of deals increase dramatically from last year, tenants are calling the shots. In Mayfair, an investor who two years ago bought off-plan and was banking on a rent of £450 a week is having to accept £375.

Mary Hennigan-Lawson of Cluttons is beginning to see good-quality properties snapped up quickly at the full asking price. "If the flat is in an excellent area, people know they can no longer hang around. There are fewer voids and the market is no longer flooded with property, particularly from the buy-to-let sector. Quite a lot of landlords have sold up."

A new but significant factor in the lettings market has been the small investor. The success of the Buy-to-Let initiative undertaken by the Association of Residential Letting Agents (ARLA) in conjunction with various lenders has made investing in residential property a much easier option. But buy-to-let yields have fallen and interest rates have gone up. FPD Savills expects net rental yields in central London to be between 5 and 6 per cent this year, compared with 4 per cent at the end of 1999.

Outside London the net yield is 7 per cent, 9.5 per cent gross. In the latest report from Bradford and Bingley estate agents, which notes a slight fall in yield, returns could be higher at closer to 11 per cent gross, with a 6 per cent variation across the country. The highest return comes from letting a flat in Scotland and the lowest a detached house in the east.

Lower yields should not put off the long-term investor, though, according to Mr Donnell. "Don't follow the rest of the crowd. Look in city centres around the regions."

In urban areas such as Birmingham, Leeds and Manchester the booming economy has led to a growing number of affluent young workers who want to rent in the centre. Jane Thomas of Knight Frank's Birmingham lettings office says the fully furnished properties have to be in excellent condition. "The tenants are part of a mobile workforce who want to be able to move into a comfortable home carrying just their CDs and suitcase. Outside the centre the demand is for good family houses, usually unfurnished," she says.

In the country, the activity is more mixed, with many families choosing to rent before deciding where they would like to buy. In Knight Frank's Esher office, nearly all the properties are large houses. American and Dutch schools nearby create enormous demand from their nationals and there is an acute shortage in the £3,500 per month plus range of homes.

But for those who do not want to take on even a six month assured shorthold tenancy, there is the ever-growing short lets market. Arnaud Cheung of Foxtons, says that more than 80 per cent of this market is from the corporate sector looking for an alternative to a hotel room. Many employees are on three-month contracts and prefer to see £1,800 a week go on a house close to Hyde Park than £3,000 to keep the family in a hotel. "It also suits people who, for instance, are having building work done on their home or are between properties. And the landlord can expect to get between 20 and 50 per cent more in rent."

Mauricette Lalloz, who has a two-bedroom flat in Kensington, regularly lets her flat for periods of two weeks to two months. "I think it's daft not to. You can leave pretty well everything as it is and earn money while you are away. I also like the idea of the flat not being empty for security reasons."

Quite apart from yields, buy-to-let mortgages and troublesome tenants there is a new consideration for landlords - passports for pets. It's all very well demanding references for a dog from Darlington but how do you check the claws of le chat from Paris? Notice has been served and, says Knight Frank, landlords may well have to accept all family members in future.