A new licensing regime for rented property could push up the cost of owning buy-to-let properties by thousands of pounds and make renting more expensive for students and other low earners.

The HMO - houses of multiple occupation - licensing scheme, which comes in to force next month, will be a compulsory levy on owners of houses that are let to five or more people living on three floors or more.

The cost of the compulsory five-year licences, as well as the work required to bring qualifying properties up to standard, could be ruinous for many smaller landlords, particularly those renting large properties to their student children and their friends.

There are also fears that some councils will put up council tax even further in order to pay for the scheme, while landlords, in turn, will put up rents to cover their costs.

The little-noticed provisions of the 2004 Housing Act relating to the licences come in to force in England and Wales on April 6. Landlords have three months' grace after that date, allowing them until July 6 to submit their licence applications, after which they will find they have committed a criminal offence.

As well as a fine, offending landlords may be subject to a rent repayment order, allowing a local authority to seize up to 12 months' rent. Licences must be bought for each relevant property that a landlord owns and will not be transferable to a new owner.

While the Government regulations for property licensing apply only to houses with three floors or more, and with five or more people living in them, local authorities have the power to apply far more stringent criteria. A council could decide that the owners of every rented property in a selected area must apply for licences.

A spokesman for the Office of the Deputy Prime Minister, which is bringing in the rules, said that they were aimed at eliminating poor housing for the vulnerable, and that most councils had to get approval before implementing a selective licensing policy on other rented homes.

To qualify for a licence, a landlord must prove that he or she is "a fit and proper" person to hold one, and the house must be suitable for the number of people living in it.

There must be at least one bath or shower and one lavatory among five people and there must also be one kitchen among five. The landlord must also make sure that the property adheres to all fire regulations.

Implementing such a scheme will be costly. A spokesman for Wandsworth council in south London said the Government was not giving authorities any extra money to implement it.

"As is the case with so much new Government legislation, councils will not receive any extra funding to carry out these new duties, so realistic amounts are being charged in order to administer these new rules properly," he said.

Wandsworth currently plans only to require a licence from those with properties over three stories with five or more tenants. The council's standard price for a licence is £1,100, with reductions for those who reply promptly.

The ODPM spokesman said that this charge was "not reasonable" and stressed that landlords could apply to an ombudsman if they thought the price was too high.

However, there is no upper limit on the licence fee local councils can charge. The spokesman for Wandsworth said: "Our charges will be very much in line with those of other London boroughs."

In areas where the licence costs are lower, there are fears that already high council tax bills will have to rise in order to pay for the scheme. The ODPM acknowledged that "local housing authorities may also choose to subsidise licensing from council tax".

Simon Gordon, the head of public affairs at the National Landlords Association, said that he feared the system could be open to abuse.

"It will depend on how local authorities implement it," he said. "In some areas it could prompt landlords to move out of the sector."

On its website, the ODPM acknowledges that licensing may worsen the housing shortage problem in some areas, stating that it "may make it more difficult for tenants to find somewhere to live".

It also warns that the licensing regime may result in higher rents for poor and vulnerable people, as well as students. It urges councils not to put licensing charges at too high a rate.

Wandsworth council said the amount it was charging was "realistic", given that the Government had not given it any money to administer the regime.

- ENDS - (Filed:  Daily Telegraph, 11/03/2006, By Rosie Murray-West)