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The Office of Fair Trading (OFT) is investigating 16 sale-and-rent-back firms amid concerns their advertisements could be misleading homeowners desperate to avoid being repossessed.
The watchdog has issued formal notices to the companies asking them to substantiate claims made in their adverts within 14 days. It will then make a decision on whether to take further action, including prosecution.
Sale-and-rent-back deals schemes allow hard-up home owners to sell their property to specialist firms at a discount in return for tenancy rights.
The action is part of wider checks the OFT is making into what has become known as the "flash sales" sector. This has grown rapidly in recent years but there is little reliable data on its size. The OFT said it is likely there are more than 1,000 firms, plus an unknown number of "non-professional landlords" who have conducted about 50,000 deals.
The firms under investigation are not being named at this stage.
The OFT recommended last October that sale-and-rent-back practices should be regulated by the Financial Services Authority, and suggested a range of measures be introduced including an obligation on firms to be more transparent about the valuation and sale price of homes, the terms of a tenancy and the rent to be paid.
There should also be a requirement on firms to tell consumers about free independent advice available to them before they decide whether to sell, it said.
The OFT's own market study found some firms might be misleading consumers over valuations and the length of time previous owners could stay in properties after they were sold, which might only be guaranteed for six to 12 months.
Examples of the claims under investigation include promises that customers can stay in their properties and rent them at a fair market rate for as long as they wish, that they can buy homes back at an agreed point in the future, and that customers will have low rents and flexible rental terms.
Heather Clayton, the OFT's senior director of consumer protection, said: "Sale-and-rent-back 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 are 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."
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