PEOPLE are increasingly turning to property rather than pensions as a means of financing their retirement, research has shown.

Investors have been spurred on by the growing market for rented accommodation, which has outstripped poor performing retirement funds.

Rapid house price increases have created interest in the buy-to-let market, where the combination of capital growth and rental income has made it more attractive than some traditional investments, UCB Home Loans said.

The lending division of Nationwide Building Society said the buy-to-let market grew rapidly during the past four years, compared to several years ago, when the rental market was dominated by professional landlords.

At the end of last year, there were an estimated 275,000 buy-to-let mortgages outstanding, worth about £24.2bn, and accounting for 3.5 per cent of residential mortgage lending.

Demand for rented accommodation has risen due to soaring house prices, an increase in the number of single people, and the fact that renting has become more acceptable, particularly among younger people.

Charles Reed, managing director of UCB Home Loans, said: "Increasing numbers of would-be first-time buyers are renting property while they save for the deposit on their first purchase.

"This is partly a result of the rapid rate of house price increases which we have seen over the past five years, but it is also evidence of a gradual shift in perceptions in the UK housing market."

The report said interest in buying properties to rent out had rippled out from areas in the south and was now strongest in northern areas where house prices were increasing more quickly.

Buy-to-let activity was particularly buoyant in Bristol, Northampton, Leeds, Manchester, York, Newcastle and the suburbs of a number of major cities, such as Birmingham and Nottingham.