British landlords earned £112bn from capital gains and rental income last year, in the latest example of the booming buy-to-let market.

As would-be first-time buyers struggle to get a toehold on the housing ladder amid rising property prices and tougher mortgage-lending criteria, investors continue to pile in to the rental market.

A report by mortgage lender Kent Reliance shows landlords made £67.2bn in capital gains, and £44.3bn from rent in the year to March 2015. The combined total represented an increase of £5.8bn on the same period a year ago.

Rising rents are a key factor, with markets in London and the south-east driving profits. Landlords are making almost £4bn a month in income from their rental properties as the average monthly rent grew by 3.9% in the first quarter of the year to £832. This marks the biggest rise since autumn 2013, the report shows.

New rules on pensions in force since April 2015 are likely to see more money come in to the sector. They give retirees freedom to spend their retirement pot as they wish, with some savers expected to buy property in the hope that the investment will provide income from rental payments.

Kent Reliance forecasts that by 2020 the total number of rented homes will have soared from 4.8m currently to 5.5m, representing about one in five households.

Buy-to-let landlords own properties worth a total of £990.7bn, more than three and a half times the £262bn the sector was worth in 2001, according to the lender’s analysis of figures from the Office for National Statistics and Land Registry.

Andy Golding, chief exective of OneSavings Bank, which owns Kent Reliance, said: “Buy to let has come of age, moving from a niche asset class to one big enough to rival the stock market. Landlords are seeing the benefit of a structural change in Britain’s housing market, with tenant demand ever strengthening.

“Yes, house prices are showing signs of steadying somewhat, but growth remains brisk. Long-term price inflation is not in danger, given the gaping chasm between growing demand for housing and the number of houses being built each year.

“Combined with the dearth of high LTV lending to first-time buyers, this will continue to buoy demand for rental accommodation, as well as landlords’ returns, and the sector will continue to expand.”