Rogue residential landlords who prey on vulnerable homeowners should be regulated, the Office of Fair Trading (OFT) declared this week.

An OFT study has found that some householders in financial hardship enter into sale and rent back deals when it is not their best option while some prospective landlords mislead consumers as to the value of their home or the security they would have as tenants.

Following months of investigation the OFT recommends that there should be statutory regulation of the sale and rent back sector by the Financial Services Authority with obligations on landlords to be more transparent about the initial property valuation, the tenancy terms and the amount of rent.

The OFT also wants a requirement on firms to tell consumers about the availability of free, independent advice before selling and for landlords that fail to honour their commitments to offer redress.

Sale and rent back was unheard of in the early 1990s recession but has become one of the defining spin-offs of the current housing downturn with consumers avoiding repossession by selling their homes to landlords, usually at a discount, and staying on as tenants.

John Fingleton, OFT chief executive, said: ‘The unfamiliar and highly pressurised situations that these people find themselves in may leave them particularly vulnerable to misleading statements or valuations from sale and rent back firms looking to make a deal. Even those customers for whom sale and rent back might be the best option could be unaware they are currently bearing almost all of the risks.’

He added: ‘Recommending statutory regulation is not something we do lightly or often, however in this case we consider it necessary to put a stop to the unacceptable behaviour of some sale and rent back operators and to ensure consumers are better protected.’

The OFT said there were over 1,000 specialist firms and ‘an unknown number of non-professional landlords’ that have conducted about 50,000 transactions to date.

While sale and rent back is seen as acceptable practice in principle, the OFT said some firms impose substantial rent rises or even evict tenants after a short tenancy period.

The study found that some consumers are evicted because they cannot afford the agreed rent, which suggests staying in the property ‘was not sustainable in the first place’. It is also possible that tenants may lose their homes if the landlord defaults on its mortgage.

The National Landlords Association, which has campaigned for industry self-regulation through a voluntary code of practice, claimed the OFT study showed ‘there is now recognition that ethical sale and rent back has a place within the housing market’. However, the association said it will support any steps to drive out ‘rogue’ operators from the private rented sector.

The association has been out of step with the Council of Mortgage Lenders, Shelter and Citizens Advice, which sent a joint letter to government a year ago calling for regulation. But NLA chairman David Salusbury, added: ‘We believe the majority of sale and rent back landlords act with professionalism and integrity. A small number of rogue operators have now brought the entire market under close scrutiny.’