A Government consultation document setting out the details of the proposed legislation over the unregulated sale and rent back sector will close on 1 May 2009.

The consultation will decide if companies offering sale and rent back agreements, which may target homeowners facing repossession, should be brought within the scope of Financial Services Authority (FSA) regulation.

The consultation follows an Office of Fair Trading (OFT) market study published at the end of last year, which looked at the impacts of the growing sale and rent back market. The OFT report identified that there are a number of risks to homeowners entering into these arrangements and made three recommendations to Government, including compulsory regulation, increasing consumer awareness and improving information about housing benefits.

The Government accepted the OFT's recommendations. Its proposals include a two-stage approach to regulation, in order to ensure consumers are protected as quickly as possible in the current market environment.

Subject to the outcome of consultation and Parliamentary approval, the Government is proposing that the FSA puts in place an interim regime by July 2009. The FSA will put in place its full regulatory regime following consultation and the publication of its final rules. The launch of the consultation today follows action taken by the OFT last week asking 16 sale and rent back providers to substantiate claims made in their adverts.

Chief Secretary to the Treasury, Yvette Cooper, said: “Many people are worried about their homes and their mortgages right now. Unscrupulous companies must not be allowed to exploit people when they are vulnerable with dodgy deals that end up pushing people out of their home.

“The OFT found some shocking cases. That's why in this consultation the Government is proposing tough new regulation to give vulnerable homeowners better protection when they need it.”

Housing Minister, Margaret Beckett said: “These new proposals will help to protect vulnerable consumers at risk from unscrupulous companies seeking to exploit households in the current climate. This is part of the wide range of actions we are taking to restore stability and confidence in the housing market and to ensure real help is in place for those who need it most."

The Council of Mortgage Lenders (CML) has welcomed the consultation by the Treasury and the Financial Services Authority.

The CML has campaigned for nearly two years for this sector to be regulated. It believes people who use sale and leaseback arrangements as an alternative to repossession need the consumer protection afforded by regulation and the Financial Ombudsman Service as soon as possible.

CML director general Michael Coogan said: “Lenders cannot always avoid repossession action through the courts, and sale and leaseback could potentially be a realistic alternative for some people as a last resort. But 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.”