Shared Appreciation Mortgages Group Action Starts

Homeowners win Group Litigation Order against BOS and Barclays

On 5 October 2009 the High Court granted a Group Litigation Order to UK home owners who are suing BOS and Barclays over “unfair” Shared Appreciation Mortgages (SAMs). This move, which BOS and Barclays attempted to block, is an important victory for homeowners who will now sue the Banks on a group, rather than an individual, basis.

(BOS, later part of the HBOS Group, is now part of the Lloyds Banking Group which is now part-owned by the state-owned vehicle UK Financial Investments.)

SAMs originated in the US in the 1970’s. In the mid-1990’s, SAMs were developed for the UK. Under these schemes, which were only sold in 1997 and 1998, before being withdrawn from the market, borrowers took out loans secured against their homes, at a zero or a reduced fixed rate of interest.

However, on repayment of these loans, borrowers also 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 (the appreciation).

The problem

Despite the fall in house prices since late 2007, the steep rise in house prices in the ten years between 1997 and 2007 has meant that with zero 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 - 40% per annum on a simple interest basis.

With fixed interest SAMs, the average interest rate is even greater at 42 - 52% per annum on a simple interest basis.

In a typical case, such as a house worth £100,000 in 1998, which is now worth £300,000, the figures are startling.

If the homeowners borrowed £25,000 at a zero rate of interest, they now have to pay a total of £175,000 on redemption (£25,000 plus £150,000, being 75% of the £200,000 appreciation). If the homeowners borrowed £75,000 at a fixed rate of interest, they now have to pay a total of £225,000 on redemption (£75,000 plus £150,000 of the appreciation), as well as about £50,000 in interest payments over the term of the loan - in all a staggering £275,000 or thereabouts.

Who would take up a Shared Appreciation Mortgage?

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. 

Who are the solicitors taking the action?

Hilary Messer of RWP solicitors, who is the Lead Solicitors in these cases and says: “Up to now, the Banks have been able to recover payment in full under SAMs and the merits of the enormous number of complaints made about this product over the years have never been properly tested in the Courts. Recent changes in the Consumer Credit Act, which have yet to be considered by the Courts, will assist the Claimants. We are delighted the Chancellor of the High Court has consented to these cases being dealt with on a group basis, as this is the only practicable way that ordinary homeowners can take on the Banks in litigation which is likely to raise complex issues of law and fact. ”

David Lowe QC and Duncan Henderson both of Thirteen Old Square Chambers in Lincoln’s Inn are instructed on behalf of the homeowners.

At present, 134 claims have been issued by homeowners. Now that a Group Litigation Order has been made, a large number of further claims will be issued by RWP solicitors. It is anticipated that many other homeowners will now decide to join in the group litigation since early action is required to ensure that claims which can still be made do not become time barred.

Individual SAM holders who wish to contact the Lead Solicitors for more information should do so on: 0845 003 9355 or register at the group action website.

Watch the time limit

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

According to which product you have there may be a cut off point when you can no longer join the group action, if you are not sure get in contact with them and soon!

DebtWizard comment

Hilary Messer spoke with DebtWizard on 13th october 2009, and has promised that he will spread the word as far as he can to help those get some redress over what is seen as an unfair contract.

If you know of someone or a relative that has one of these mortgages then speak with them now and point them to this article, or give them the telephone number to get on the action group, 0845 003 9355.

If just one family is missed then the repercussions could be very costly.