Rents in Brighton and Hove could rise due to housing benefit claimants being paid direct, landlords have warned.

Property owners fear a Government scheme launched yesterday to give more choice to people relying on state handouts will make letting in Brighton and Hove even more expensive.

It will become the first city in Britain to pay all claimants a new flat fee for rent rather than paying the market rate directly to the landlord.

It means if they can find a flat for less than the payment, they can effectively keep the change.

It would also encourage many tenants to open bank accounts for the first time and get cheaper deals on their utilities bills.

But Robert Haycock, the Brighton chairman of the Southern Private Landlords Association, warned prices would be pushed up by the changes.

He said: "There will be an increase in rent at the lower end of the market.

"If the private sector reacts, it could lead to an immediate increase. Basically, landlords will look at what the tenants are likely to receive and adjust their rents accordingly.

"We're businessmen and at the end of the day we will take out of the market what it will give us."

Housing benefit tenants tend to rent homes at the bottom end of the market, paying about six per cent less than people working full-time.

Tenants living in a single room will now be paid £66 per week. Under the old benefit scheme they would have received about £57.50.

Landlords receiving about £90 a week for a studio flat are likely to increase it to £110, knowing the claimant will still be £13 better off under the new scheme, Mr Haycock said.

Rents will now go directly to all new tenants to make people take responsibility for their own budgets and slash through expensive red tape, the Government claims.

Andrew Smith, Work and Pensions Secretary, launched the new Pathfinder scheme at Brighton Town Hall yesterday.

The change is the biggest shake-up since the benefit was introduced 20 years ago.

Mr Smith said: "I am delighted Brighton has put itself at the forefront of this exciting reform."

Claimants initially welcomed the move as it would give them more freedom to choose their homes and give them a few pounds in their pockets.

Pensioner Brian Sensier, 66, who rents a bedsit in Grafton Street, Brighton, said: "My allowance has gone up from £21.50 to £31 a week, so I have more money to spend and I am very happy."

His landlady, Phyllis Clipham, said: "If a scheme such as this helps people, it must be a good idea."

The new payment scheme is also being tested in eight other cities over the next two years.

If it proves successful, it will be extended across Britain.

Existing claimants, while getting the new standard rates, will continue to have their benefit paid directly to their landlord until June.

Vulnerable tenants will also have their allowances paid directly.