The sale and rent back system has been much criticised for targeting property owners facing repossession and Ministers believe it should come under the scope of the Financial Services Authority.
The controversial scheme offers homeowners the option of selling their properties at discounted rates in exchange for tenancy arrangements which allows them to remain in their home as a tenant.
The move comes on the back of an Office of Fair Trading study published at the end of last year that which highlighted risks to property owners entering into these kinds of arrangements.
Its report recommended compulsory regulation, promoting consumer awareness and improving information about housing benefits. Last week it challenged 16 sale and rent back providers to substantiate claims made in their adverts.
The Government accepted these and 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. A full regulatory regime would follow.
'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,' said Yvette Cooper, the Chief Secretary to the Treasury.
'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,' she added.
The Council of Mortgage Lenders welcomed the move. It has campaigned for nearly two years for this sector to be regulated. 'Basic regulated standards of fair treatment and redress are essential, to avoid vulnerable households being exploited by unscrupulous operators,' said Michael Coogan, CML director general. '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,' he added.
The consultation sets out the details of proposed new legislation and is open to comment and suggestion until 1 May 2009.
