Victory for 'unfair' mortgage victims

15 October 2009

On 5 October 2009, the High Court granted a Group Litigation Order to UK homeowners who are suing Bank of Scotland and Barclays over ‘unfair’ shared appreciation mortgages (SAMs).

This is an important victory for homeowners who will now sue the banks as a group, rather than on an individual basis.

SAMs, which were sold between 1997 and 1998 before being withdrawn from the market, enabled borrowers to take out loans secured against their homes at a zero (or a low fixed-rate) of interest.

The problem came on repayment of these loans as borrowers had to pay an additional charge, which in most cases worked out at or close to 75% of the increase in the value of the property during the lifetime of the loan (know as the appreciation).

The steep rise in house prices in the 10 years between 1997 and 2007 has meant that, with 0% interest SAMs, the lender’s share of the appreciation is now an average of 4.4 times the amount borrowed - equivalent to an average interest rate of 35% to 40% per annum.

With fixed-interest SAMs, the average interest rate is even greater at 42% to 52% per annum.

Homeowners who borrowed £25,000 now have to pay a total of £175,000 on redemption.

If they borrowed £75,000 at a fixed rate of interest, they would now have to pay a total of £225,000 on redemption as well as about £50,000 in interest payments over the term of the loan - in all a staggering £275,000 or thereabouts.

Many of these mortgages were taken up by older people, who now find themselves trapped in properties which are no longer suitable for them as they cannot afford to sell up and buy a suitable smaller property.

It is estimated that a total of 12,000 SAMs were sold in the UK, of which around 7,000 may still be unredeemed.

Hilary Messer of RWP solicitors, which is the lead solicitors in these cases, says she is desperately trying to locate other homeowners who are part of these scheme - because time limits could statute bar some claims.

If you have a shared appreciation mortgage and believe you have a potential claim then you can register on the group action website or call it on 0845 003 9355.