The new rules will be even tougher on sale and rent back firms
Extra rules to regulate "sale and rent back" property deals are going to be brought in by the Financial Services Authority (FSA) next year.
The FSA will ban "exploitative advertising and high-pressure sales techniques", it said.
It wants to protect financially troubled home owners who consider selling their homes and becoming tenants in them instead.
The FSA started regulating "sale and rent back" firms in July 2009.
An enquiry by the Office of Fair Trading (OFT) last year found that some firms offering these deals were devious and dishonest, luring people into selling their homes at a discount, only to evict the former owners within months so their homes could then be sold at a large profit.
"Many of the people typically targeted are financially vulnerable and have been badly hit by the experience," said Ed Harley, the FSA's head of mortgage policy.
"We want to prevent high-pressure and inappropriate sales, and help consumers understand sale and rent back products, so they only enter into sale and rent back where it is an appropriate and sustainable solution for them."
Firms offering these sorts of arrangements, typically aimed at people under threat of repossession, are required to be authorised by the FSA and to be run by people who are "fit and proper".
The extra regulations, which will come into force on 30 June 2010, will:
• bring in a cooling-off period to give consumers more time to make decisions
• ban cold calling and prohibit firms from dropping promotional leaflets through letter boxes
• prohibit the use of emotive terms like "fast sale", "mortgage rescue" and "cash quickly" in promotional literature
• ensure consumers have security of tenure; and
• require that in every sale, firms check that the consumer can afford the deal and it is right for them.
So far, just 80 firms have applied for FSA authorisation, even though the OFT found there were more than 1,000 companies selling these deals last year.
Firms or individuals that break the rules can be fined or prosecuted, with individuals facing possible imprisonment.