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Sale and rent back companies, also known as sale and lease back or market rescue, offer to buy homes from struggling mortgage borrowers, but for significantly lower than the market rates. In return for their house, homeowners receive a lump sum in cash and the right to remain in their homes as tenants.

There are estimated to be upwards of 1,000 firms operating in the UK in an industry that is worth over £3 billion.

The government has launched a consultation that proposes companies offering sale and rent back schemes should be regulated by the Financial Services Authority. If the plans are supported, legislation will come into force by July 2009.

This news comes after The Office of Fair Trading announced last week that it was concerned that some sale and rent back companies may be promising more in their advertising than they can actually deliver to clients. Now, 16 such firms have been ordered to back up their advertising claims or face prosecution. The claims have been made by door to door salespeople, and in newspaper and online advertising.

Open to abuse

As the credit crunch bites and unemployment rises, sale and rent back schemes appear to offer a lifeline to those struggling to keep a roof over their heads. But the industry is currently unregulated meaning that some companies can exploit struggling homeowners.

Adam Sampson, chief executive of Shelter, says: "Some packages are misleading, leaving people financially worse off and vulnerable to homelessness."

Facing eviction

Watchdog investigated these schemes in 2007. We spoke to Michael Stokes who turned to a sale and rent back firm when he could no longer pay his mortgage. The company said he could rent the property back and he paid one year's rent in advance.

Michael told us: "They said they'd buy my house, they'd buy the property I'd rent it back and I could stay in it as long as I liked."

But after just six months he received an eviction notice from the firm. Michael was astounded: "They'd never suggested or hinted I wouldn't be able to live here," he told us.

It was only when Watchdog contacted the company that it said he could remain in his home.

The announcement follows an OFT market study into the sale-and-rent-back sector which concluded that there was a need for statutory regulation. It found that some companies may be misleading consumers as to the value of their property or how long they may stay in the property after it's sold, which may only be guaranteed for six to 12 months.

The Council of Mortgage Lenders, Citizens Advice Bureau and Shelter have been campaigning for the sector to be regulated for nearly two years. Michael Coogan the director general of the Council of Mortgage lenders welcomed the news saying that basic regulated standards of fair treatment and redress are essential, to avoid vulnerable households being exploited by unscrupulous operators.

"We look forward to the July implementation of regulation - in the meantime, consumers should continue to make sure they have explored all the options with their lender before considering this route and if they choose sale and leaseback be extremely careful."

Advice if you're facing repossession

Shelter advises people to take independent financial advice before taking any action with a sale and rent back company.

It also urges people to look to the new national, regulated Mortgage Rescue Scheme launched in January of 2009. Not only will it help some struggling homeowners stay in their own home but also protect them from unscrupulous sale and rent back companies. You can find out more information on the Mortgage Rescue Scheme section of the Communities and Local Government website.

Anyone struggling with the cost of their mortgage or with any other housing problem can go to the Shelter website or call its free advice housing line on 0808 800 4444.