Landlords will need a licence-to-let and a business plan to take out a mortgage, under proposals published by the Government today.

In a report that could sound the death knell for amateur buy-to-let investors, independent housing policy experts recommended a raft of measures that would turn letting property into a business rather than a bit of cash on the side.

The review, designed to root out rogue landlords who provide a poor standard of accommodation, also proposed tax incentives that could include changes to stamp duty and capital gains tax for professional landlords to encourage them to buy more properties.

Dr Julie Rugg, the author of the report, said: “We want to see a new culture of renting, where landlords view themselves as hands-on business people not hands-off investors.”

The proposals will come as a blow to struggling buy-to-let investors, who now face a dire shortage of mortgage finance as lenders increase rates and fees, or stop offering deals altogether. The number of landlords being repossessed rose by a quarter in the first half of 2008, according to the Council of Mortgage Lenders.

The licence, which could operate a bit like a driver’s licence, would mean that landlords who fail to measure up could have points deducted or lose their licence altogether and be banned from letting property.

The review said that buy-to-let mortgages should become “subject to business planning and the inclusion of strategies to protect tenants in the event of defaults on mortgage repayments by the landlord.”

A spokesman for the National Landlords Association said: “This will separate the wheat from the chaff and sift out the rogue landlords from the good ones. Investors who have become landlords to make a quick buck don’t bring in the skills that the sector needs.”

The proposals will also affect the growing number of homeowners who cannot sell their properties in the current housing market and are instead becoming “reluctant landlords” by renting out their properties, then renting themselves elsewhere.

Falling house prices are boosting demand from tenants, as prospective buyers are choosting to sit out the downturn in rented accommodation in the hope that the market has farther to fall. Demand for rental property has soared by 50 per cent in the last year, according to figures from Your Move, the lettings agency. The number of new leases rose by 4.3 per cent in September.

David Newnes, managing director of Your Move, said: “As banks stopper the bottle of mortgage finance, potential buyers have to stay in rented homes for longer than they have in the past. In spite of the large number of rental properties coming onto the market, we are seeing the strongest tenant demand we have ever had.”

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