The Office of Fair Trading (OFT) has issued formal notices to 16 sale and rent back firms asking them to substantiate claims they make in their adverts.
Sale and rent back firms buy homes from individuals, usually at a significant discount, and then rent them back to the previous owners.
A typical claim made in adverts by these 16 firms is that customers can choose to stay in their properties after they are sold, by renting them back as tenants for as long as they wish, at a fair market rate.
But some firms also claim that householders can buy back their properties at an agreed point in the future or that customers will have low rent periods and flexible rental terms.
The firms have been given 14 days to reply to these OFT notices. Based on their replies the OFT will decide whether or not to take further action, including prosecution.
This action follows a 2008 OFT market study into the sale and rent back sector which concluded that there was a need for statutory regulation.
It found that some firms may be misleading consumers as to the value of their property or how long they may stay in the property after it is sold which may only be guaranteed for six to 12 months.
The firms have been given 14 days to reply to these OFT notices. Based on their replies the OFT will make a decision on whether or not to take further action, against these firms, including prosecution.
Heather Clayton, OFT senior director of consumer protection, said: ‘Sale and rentback companies must be clear and transparent about the services they offer and the security consumers have as tenants.
'Clarity of advertisements is particularly important in the sale and rent back sector where customers may be under stress from financial difficulties, at risk of losing their homes and making important and complicated decisions.
'The OFT will continue to take action in any cases where such businesses engage in unfair and misleading practices.’