LSL index says rents rose 3.5% in May, pushed up by strong demand, while the wider cost of living rose 2.7%

The cost of renting a home in England and Wales is rising quicker than the rate of inflation, with the average monthly cost up 3.5% in the 12 months to May, according to LSL Property Services' buy-to-let index.

The average rent in England and Wales rose to £737 a month, 0.1% higher than in April, and is set to reach £800 by mid-2015, the company said.

In London, rents have risen by 7.2% since May 2012 to an average of £1,113 a month. The next fastest rise was in Wales, where rents were up 5.2% over the year, followed by the north-east with annual rises of 4%.

These all outstrip the increase in the wider cost of living, which hit 2.7% in May.

LSL's figures also show that in six out of 10 regions rents are higher than a year ago, with only the south-west seeing no change since May 2012.

Prices are being pushed up by strong demand from people struggling to get on the property ladder. The number of new tenants increased by 3.4% from April to May, and 5.1% year-on-year.

A total of £276m of rent was either late or unpaid in May, down from £282m in April. The fall was due to an improvement in tenants' finances as they pay down debt, LSL said.

David Newnes, director of LSL Property Services, owners of estate agents Reeds Rains and Your Move, said: "With wage growth so weak compared to inflation and house price growth, it looks like deposits will become less affordable – which will keep demand for rented accommodation high.

"The rental market has demonstrated its flexibility in May, but will need to continue to adapt to deal with the long-term change towards levels of demand unprecedented in recent decades. May's figures are consistent with our longer-term predictions – that private renting will become a more and more vital aspect of the economy."

Average monthly rents in England and Wales will hit the £800 mark by the middle of 2015, LSL's Lucy Jones said when speaking to the Council of Mortgage Lenders on Wednesday. This will amount to a 21% rise on 2010, and by May 2014 the cost of rent will average £765 a month.