A new study will investigate the growing numbers of controversial “sale and rent back” firms cropping up in the current market.

The Office of Fair Trading (OFT) said it would conduct a market study into the sector, where companies bought property from struggling homeowners at a discount and then leased them back under strict terms.

The announcement came after this year’s Budget highlighted fears about consumer protection within the sector.

Adam Sampson, chief executive of charity Shelter, said, “This study is urgently needed, and comes on the back of vulnerable people losing their homes to some dishonest sale and leaseback companies.

“These companies encourage hard-up homeowners to sign up for what is plainly a very bad deal. Shelter has seen cases where homeowners have not only lost out financially after selling their homes to an sale and leaseback company, but also lack any right to permanently stay in their home and ultimately find themselves homeless.”

There are few concrete statistics on the actual size of the market, but most agreed it was likely to expand in the wake of the credit crunch, as economic troubles worsened and mortgage companies seized more houses.

The OFT said it would investigate whether targeted homeowners were making informed choices. Possible outcomes of the study included action being taken against companies suspected of breaking the law, or referring the entire industry for a full Competition Commission investigation.

Housing experts expressed concern that immoral companies were persuading vulnerable members of the public into accepting discounts on their homes in exchange for rental agreements only valid for a year or less.

Once that lease was up, lodgers could face significant rent increases or be forced to quit the property they previously owned.

Ray Boulger, of John Charcol, the mortgage broker, said the elderly were among the most likely to get into trouble by selling their home below market price to such companies.