Shared appreciation borrowers to take legal actionGroup action to challenge ‘unfair’ mortgages

23 February 2009

Homeowners who took out shared appreciation mortgages (SAMs) in the late 1990s are to take legal action against the banks that sold them.

Hilary Messer

Hilary Messer

The Bank of Scotland (now part of the Lloyds Banking Group) and Barclays sold shared appreciation mortgages between 1996 and 1998. They were a type of equity release product where the borrower took out a loan at a fixed interest rate of 5.57% to 5.99% or 0% and agreed to pay the lender a proportion of the increase in the property’s value – up to 75% - when they paid off the mortgage.

Huge debt

As house prices have increased by much more than borrowers expected them to since then, many of the people who took out a shared appreciation mortgage now owe their lender so much money that they would not have enough equity to move house – even to smaller property – if they sold up and are trapped in their homes.

House prices in the UK rose by an average of 149% between the start of 1998 and the end of 2008 according to Nationwide. This means that someone who borrowed £25,000 at 0% interest on their £100,000 property could now owe almost £137,000 on a property worth £249,000.

This would leave them with just £112,000 to buy a new home – well below the current UK average property price of £150,501.

New rules

Recent changes to the Consumer Credit Act 1974 mean that it could now be possible to challenge these mortgages. If a court decides that the relationship between the lender and the borrower is ‘unfair’ to the borrower the court would have the power to vary the repayment terms.

The group action is being conducted by Hilary Messer of RWP Solictors, who acted for victims of the Paddington rail crash. She said: ‘Leading counsel has advised that there are strong grounds for contending that the relationship between the bank and the holder of the SAM was ‘unfair’ for the purposes of these new provisions.’ A 'letter before action' has now been sent to the banks.

Find out more

If you have a shared appreciation mortgage that you have not yet paid off, visit the SAMs group action website as soon as possible to find out more about the group action and how you could be part of it. RWP Solicitors says that time may be running out for some people. Alternatively, call 0118 984 2266 or email to contact Hilary Messer.

You should think carefully about whether to take part having considered all the information from RWP Solicitors. Participants are being asked to contribute £5,000 upfront to costs but if the case were to fail you might have to pay more than this.

Visit our guide to equity release for more on equity release schemes.

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