Borrowers who took out shared appreciation mortgages with Barclays or Bank of Scotland in the 1990s have until the end of the year to sign up to legal action against the banks.
Teacher Stern, a law firm specialising in securing redress for customers who’ve been treated unfairly by financial services companies, originally set a summer 2017 deadline for SAM borrowers wanting to join its legal challenge against the two lenders.
But after receiving hundreds of requests from borrowers who took out the loans in 1997 and 1998, the law firm has extended the sign-up period to the end of the year.
Teacher Stern is ready to take the banks to task over ‘unfair’ shared appreciation mortgages
Borrowers were sold shared appreciation mortgages in the late 1990s to help them fund retirement, but many have now been trapped by debts that have rocketed to many times more than they borrowed.
The loans allowed borrowers to release a cash sum worth up to 25 per cent of the value of their home, often interest-free.
The catch was that when the property was sold, the loan would have to be repaid in full plus up to an eye-watering 75 per cent of any uplift in value of the property.
Those who took them out are the victims of house price inflation well beyond any expectations at the time – and instead of seeing the benefit of the growth in the value of their home, they have seen their debts grow to punishing levels.
The result is that profits on each loan can sometimes be in excess of 700 per cent.
Chris Philpot, solicitor at Teacher Stern, said: ‘We’ve seen a really healthy interest from borrowers who either still have or have had a shared appreciation mortgage.
‘We are still receiving inquiries on almost a daily basis from those who have only just heard that we are planning to challenge the banks and we want to offer as many people as possible the option to join.’
>> Read more about the legal challenge Teacher Stern is proposing
Bank of Scotland deliberately targeted older borrowers who were short of cash and ditched the need for borrowers to take independent advice
Philpot’s aim is to prove that borrowers, most of whom were elderly and vulnerable when they took the loans, signed a contract with the bank that was unfairly tipped against them.
This is Money’s own investigation into the way the loans were sold by Bank of Scotland provides evidence that the bank deliberately targeted older borrowers who were short of cash, that it ditched the need for borrowers to take independent advice because too many advisers were telling clients to steer clear of the loans, and that senior staff at the bank were financially incentivised to sell as many SAMs as possible to ramp up fees.
Philpot is hoping the courts will rule the banks should waive the astronomical sums now owed by those who took SAMs and charge them a reasonable rate of interest over the period instead.
HOW SAMS WORK OVER TIME
The owner of a £200,000 house in 1998 would sign up to a SAM and be given £50,000 cash. If that house were sold in 2014 for £600,000, the owner would be required to hand over £350,000 to redeem the mortgage – a return of 600 per cent for the bank.
If, on the other hand, the same borrower had taken a normal mortgage of £50,000 and paid interest at, say, 10 per cent (the base rate peaked at 7.5 per cent in 1998) – they would only have paid back around £104,000 over that period.
The court could decide to force the banks to change the SAM contracts to reflect the second scenario, meaning borrowers won’t have to pay such astronomical sums.
It could also mean that anyone who had a SAM in the past and has already paid it back is eligible for a rebate.
Anyone wishing to make a claim will have to pay a nominal fee and fill in a short questionnaire detailing the circumstances in which they or their parents took the shared appreciation mortgage.
There are likely to be further costs for taking part, depending on the outcome of the challenge.
Philpot said: ‘This is really a final call to anyone who has a shared appreciation mortgage, has parents who took one or anyone who had one that they’ve already paid back.
‘We believe we have a strong case against the banks and are hoping to achieve a far fairer deal for those who are facing these huge debts. If anyone is affected by SAMs they should get in touch on a confidential no-obligation basis.’
>> Why we’re fighting for fairness on shared appreciation mortgages and backing the borrowers crushed by debts linked to house prices
JOIN OUR CAMPAIGN
This is Money has been campaigning for these borrowers since July 2016 to highlight just how crushing the outstanding balances on some of these loans have become after two decades of rising house prices.
We don’t think borrowers should get off scot-free. Far from it – they signed contracts that the banks are enforcing.
But we do think there is room for negotiation between the banks and their, very often, vulnerable customers.
To share your experience or get in touch with Teacher Stern, email email@example.com