Almost 40 building companies have been blocked by the government from installing insulation amid a growing outcry over the profusion of botched jobs across the UK.

Ministers also announced that any homes found to have received botched insulation would have the issues put right by the installer responsible at no extra cost to the homeowner.

Many homeowners have been unable to remortgage or sell their homes after using government-backed schemes to improve the energy efficiency of their properties with spray-foam insulation.

Others have been dogged by substandard work such as insufficient ventilation, or missing or exposed insulation, which could lead to damp and mould despite using accredited installers.

The government said it had suspended 39 businesses from fitting new insulation in people’s homes after it was alerted to reports of poor-quality work.

It has also instructed the energy regulator Ofgem to contact homes that used the previous government’s home insulation schemes – the energy company obligation 4 and Great British Insulation scheme – to arrange a check on the quality of the insulation they received.

The schemes encouraged approximately 65,000 households to undertake solid wall insulation in their homes as part of the government’s drive to improve the energy efficiency of Britain’s homes, cut carbon emissions and reduce home heating bills.

But many of the grant-funded installations are understood to have included the use of spray-foam insulation, which has been found to cause 25% of roof timber to decay within five years if applied directly to roof tiles or certain underlays. This is likely to make homes difficult to sell or remortgage.

Miatta Fahnbulleh, the minister for energy consumers, said: “I know this news will be concerning for people who have had external or internal wall insulation fitted through either scheme we have inherited.

“Affected households should look out for a letter from Ofgem, which will set out steps to resolve any issues.”

James Dyson, a senior researcher at the climate thinktank E3G, blamed the “faulty protections and standards the previous government” for allowing “cowboy builders [to] do botched jobs”.

“The only long-term way to make Britain’s cold and damp homes warm and affordable to heat is good quality insulation,” Dyson said. “The current government must improve insulation standards to ensure this never happens again.”

Fahnbulleh confirmed that the government’s upcoming Warm Homes Plan would overhaul the existing system of protections for consumers, which was “in dire need of reform”.

“This will be front and centre of our Warm Homes Plan, as we work to make sure no households are let down in this way again,” she said.