The flat that never was: How the rental market became an attractive target for fraudsters.

If Harry Harris looks unhappy there is a good reason – he and five close friends lost £1,600 each in an online rental scam which is becoming increasingly common in large cities across the country.

Harris and his colleagues, all recent graduates, advertised on the Gumtree small-ads website for a home to rent in central London.

"We thought we'd been very clever avoiding a scam earlier. We were contacted by a Nigerian saying he had the perfect flat. He sent photographs but then explained he couldn't appear in person and asked for money to be wired to him. We smelt a rat," says Harris, now in a temporary job as a barman.

"But then we were called by someone agreeing to meet, saying he owned a large house in Great Portland Street [central London]. Two of our group went along. The man seemed entirely plausible and the place seemed fantastic. Then we all met a woman who said she was the estate agent. These people were grade-A actors," says Harris.

"We've got property people in our family and these actors looked and sounded exactly the part. They wanted a month's rent and a deposit from each of us, which was normal. They wanted it in cash which seemed odd but they were plausible in every other respect so we went along with it," he says.

The penny dropped when the money was handed over and the six went to their new home only to find the keys didn't work. They then found out the viewing of the property was only possible because the real keys had been falsely obtained from a genuine lettings agency advertising the house at a much higher price.

"Suddenly these two con-artists didn't answer their phone. We ent to the police but of course the money's gone," says Harris.

London human resources manager Madeleine Cox was another victim of an online rental scam, although she luckily avoided losing cash.

"I saw an ad on Gumtree for a three-bed flat in Clapham [south London] at £920 a month. That was ludicrously cheap but it all looked entirely legitimate. I emailed the owner who said he was in Estonia and wanted someone to look after the flat while he was away. It seems silly now but at the time I gave him the benefit of the doubt," she says.

After a brief exchange of emails, the transaction went sour. The landlord asked Cox to send £300 for his air tickets back to London, so he could show her the apartment in person. "He was aggressive, saying he'd had a wasted journey the previous month to show around a prospective tenant who hadn't turned up. He wanted the £300 as a gesture of good faith," says Cox.

She refused to transfer the money, and then realised that the images of the Clapham property used on the small ad had been copied from a legitimate lettings agency website, where the same home was genuinely advertised for £1,000 per week.

The incidence of such scams is rising. The UK's main property watchdog, the Property Ombudsman has recieved 5,000 complaints so far this year, while the police's National Fraud Intelligence Bureau issued an alert last month after 95 complaints, about 50 connected with bogus London apartment deals and most of the rest in north-east England. Three-quarters of victims are students, mostly from overseas. Hundreds of other complaints are now with police authorities and may be turned over to the NFIB shortly.

Housing charity Shelter says the problem is far more widespread than had previously been thought. A survey of 2,234 people for the charity suggests 2 per cent had fallen victim to a scam involving a private tenancy or landlord – equal to more than one million people across Britain if that sample is representative – while 4 per cent knew someone who had been in contact with a scammer, even if they found out before losing money.

The majority of the scams involve online advertisements giving details of a property. Typically the landlord communicates only by email because he is abroad.

The landlord says contracts must be signed and deposits sent before a date can be agreed for the tenant to move in; sometimes credit card numbers are requested but usually the fraudster asks for the funds to be paid via Western Union or MoneyGram. These routes are much harder to trace than, for example, the cashing of a cheque.

After the payment goes through the property turns out either not to exist or to be rented to several victims at the same time.

Scammers know tenants are on the back foot in today's rental market. Demand far exceeds supply and some lettings agents report rent rises of 20 per cent in large cities over the past year and the rise of the sealed rental bid in London.

Lettings agency Winkworth says its tenant registrations are 47 per cent higher than in May, while the Association of Residential Lettings Agents says average void periods – gaps when properties are empty between tenants – is down from six weeks a year ago to under three weeks in some areas today.

There are already more than three million households renting privately, mostly singles or young couples and sharers, and with mortgages still being hard to get many observers think the total will top four million by 2020.

"These scammers hope people will cut corners and be willing to pay up-front to secure a property. If you've seen three flats and been pipped at the post each time, you might just do it," says Nick Parkin of Pimlico Flats, a London lettings agency.

His website www.pimlico-flats.co.uk carries examples of scam advertisements, including those for serviced apartments where foreign tourists are targeted. They pay in advance, arrive in London, and find the apartment does not exist.

"It is difficult for legitimate online sites to monitor everything but they are very diligent when they want to be. Sites work hard to remove professional landlords' ads that are disguised as amateurs – the sites then make them pay fees. If they were as hard working at tracking down scammers, everyone would be better off," says Parkin.

Gumtree, in line with most free advertising websites, carries advice to would-be renters urging them never to attend a viewing unaccompanied, never provide bank or identity information, and to "be wary of any requests to use money transfer services to pay deposit money or prove you have funds". It says: "If in doubt about a prospective landlord or agency either contact us for advice or don't proceed."

Meanwhile Cox has to continue commuting to London from her parents' home in Reading, while Harris is back living with his family in Worcestershire and his friends are staying with friends or relatives across the country.

"One day we may make it to London but for now out renting plans are on hold," he says. "It's a shame for us but our real hope is that it doesn't happen to others".

Sadly, that may be a hope too far.

Don't Get Caught Out

1. Don't be seduced by low rents. Demand far exceeds supply so there are few bargains. Research the local market and know how much you should pay.

2. Don't hand over money if a landlord claims to be overseas. He may promise to send you keys or fly over but this is probably a scam. Overseas landlords should have a managing agent or a lettings agent to handle the rental. Verify the credibility of the agent by checking with Companies House.

3. There are stories of prospective tenants viewing a property and paying a deposit only to find the outgoing tenant was posing as the landlord. Make sure you are confident you know who the landlord is; a lettings agent should do a background check first.

4. Only pay what you should: it might be tempting to give two months' rent in lieu of a deposit if it is a lower sum but there is nothing to stop a landlord running off with it. The Tenancy Deposit Scheme should protect tenants by holding their money in a third-party account and should resolve disputes at the end of the tenancy.

5. Check details: ensure you are happy with each clause in the contract. Always ask for an inventory and check the condition of every item, otherwise you could end up paying for items already damaged or broken.

Source: Grainger, which owns 13,000 homes to let in the UK