Homeowners who lose out because of sharp practice by estate agents will have access to a compulsory compensation system under proposals announced by the Department of Trade and Industry.

But some industry groups complained that the government had not gone far enough by refusing to set up a compulsory licensing scheme for agents.

Government Response: Department of Trade and Industry

Gerry Sutcliffe, consumer minister, said: "This is a broadly competitive market, and there are many good estate agents who provide value for money.

"But that doesn't alter the fact that there are some who do not come up to scratch - although finding evidence to prove this is not easy because written records are often not kept.

"Under our proposals, the market will remain competitive, but those rogue agents who flout the law will find themselves out of a job.

"There have been calls to introduce a system where estate agents have to obtain a licence before they can set up business. This would cut competition, deterring potentially good estate agents from entering the marketplace. But more importantly, it would not weed out the rogues and would push up prices without offering protection.

"By beefing up enforcement and making it legal for estate agents to belong to an independent ombudsman-type scheme, we provide protection for consumers and honest estate agents - and put the brakes on the rogues."

Stakeholder Response: National Association of Estate Agents

Richard Hair, president of the National Association of Estate Agents, said: "The NAEA welcomes the government's response to the OFT report into estate agency and its proposals to tighten up our industry.

"The plans for compulsory membership of an independent redress system - vital to protect the public throughout the home buying and selling process - are particularly welcomed. Our disciplinary procedures already provide protection for the public against members who breach our strict code of conduct and we are working to extend this protection to provide a complete independent redress system.

"The government has understood the need for a recognised minimum standard for estate agents. The NAEA feels that its Technical Award scheme, which has proved hugely popular since its introduction last year, would represent the ideal benchmark.

"We fully agree with both the OFT and DTI that consumers deserve a better deal from estate agents which is why all NAEA members must adhere to our high standards. The proposals put forward in this report mark a significant step forward for the industry and a brighter future for homebuyers and sellers."

Stakeholder Response: Consumers' Association

Nick Stace, director of Which? campaigns, said: "This is a big victory for Which? and will be welcome news to thousands of home movers. Although this is 'back door licensing' - as the government is still relying on the industry to sort itself out - Which? welcomes the government's move to finally tidy up this out-of-control industry.

"For years we have called for a clampdown on rogue estate agents who have exploited people moving home – probably the most stressful and expensive time of our lives. We will be keeping a close eye on what happens over the next 12 months and will continue to name and shame any rogue 'professional' who is ripping off home movers."