How much worse can it get?
PRISONERS IN THEIR OWN HOMES - Thousands hit by 1980s 'shared appreciation' deals which leave elderly unable to sell off their homes and children hit with bills
By Daniel Jones Consumer Editor
6 August 2016
Their distressing consequences were highlighted this week by the case of a 90-year-old woman who took out a £22,500 loan with Barclays and now owes £177,000.
The Sun has since been contacted by pensioners left unable to sell or leave their homes to their children. MPs last night backed our call for authorities to launch a full probe into these loans and for the banks involved to cancel the debts.
Shared appreciation mortgages, known as SAMS, were a product of the unregulated loan marked in the Eighties and Nineties. They were targeted at over-60s who had paid off their mortgages and wanted to release cash from their homes.
An example of such a loan was even put on display in London’s Millennium Dome. Some 12,000 were sold by Barclays and Bank of Scotland alone between 1996 and 1998.
But many others were sold as far back as the late Eighties, as well as after 1998. But Barclays and Bank of Scotland had separate companies to deal with these mortgages, which were not signed up to the code.
Campaigners have previously fought hard against the debts, raising £1.5million in 2009 to take a class action against Barclays and Bank of Scotland.
When the cash ran out the case was withdrawn and campaigners were hit with millions in the banks’ legal costs. To avoid paying them the campaigners were forced to sign gagging orders to prevent them ever complaining about SAMs again.
Labour MP Wes Streeting, a member of the Treasury Select Committee, last night pledged to support The Sun’s call for action. He said: “Banks stand accused of profiting on a huge scale at the expense of decent people.
“The banks need to do the decent thing and acknowledge it is unreasonable to expect these huge sums back for such small loans. I will call on the Treasury Select Committee to get the bank bosses in to explain how this situation has come about.”
Lib Dem leader Tim Farron said: “We think regulators like the FCA and the financial ombudsmen should look at this urgently.”
A Barclays spokesman said the loans had required no interest or monthly repayments and insisted: “We explained the mortgage terms to each customer.
“Barclays has a SAM hardship scheme designed to help customers experiencing difficulty during the mortgage term who may wish to move to a smaller property.”
A Bank of Scotland spokesman said: “If a customer feels they are facing financial hardship as a result of their SAM we would encourage them to contact us to see if we can assist.”
How SAM’s stack up
USING the Nationwide price index, the average house in 1986 would have got a 25 per cent SAM of £12,733. That house would now be worth £204,238.
Based on a calculation of 75 per cent of the increase plus the original loan the homeowner would have to stump up £127,714 now. Plus they may need to pay valuation fees.
· House value in 1996: £50,930
· Loan then: £12,733
· House value now: £204,238
· Increase in value: £153,308
· 75% of increase: £114,981
· Owed now: £127,714
· Bank’s profit: 903%
'Only a mathematician would understand it'
Year SAM taken out: 1998
Location: Earls Barton, Northamptonshire
House value then: £82,500
Loan then: £20,625
House value now: £220,000
Owed now: More than £100,000
Bank’s profit: More than 400 per cent
DRIVING instructor Amanda Hall had to hand Barclays more than £100,000 this week after losing a fight over her parents’ shared appreciation deal.
She insists her late mum and dad Alan and Judie, had no idea how much their debt would be. Amanda says they believed the sum was a much smaller percentage of their bungalow’s appreciation plus the value of the original loan.
The property in Earls Barton, Northants, was valued at £82,500 at the time the deal was taken out in 1998. It sold for £220,000 after Judie died in July last year.
Amanda, 52, said: “They were oblivious because they believed it was only 25 per cent, not 75 per cent. “It wasn’t explained to them properly and you would have to be a mathematician to understand the paperwork.
“They weren’t stupid either, they were very sharp with their money. They would be turning in their graves now if they knew.
“If someone had said to my dad, ‘You are borrowing £20,000 but it could be that your kids would have to pay back over £100,000’ he wouldn’t have had anything to do with it.
“I’ve been to the Ombudsman but they advised me not to take it further. You can’t fight Barclays because they are too powerful.
“Mum and Dad trusted Barclays and had been customers with them for 50 years. They were told this was the best way to borrow money.”
'It's a David and Goliath situation, the banks can take on individuals'
Year SAM taken out: 1997
Location: Bisley, Surrey
House value then: £250,000
Loan then: £62,500
House value now: £465,000
Owed now: £225,000
Bank’s profit: 260 per cent
ENGINEER Richard Fuller is fighting to keep the village home his family have lived in for generations.
He is facing a £225,000 bill from the Bank of Scotland to pay off his late parents’ SAM loan of £62,500 on their house in Bisley, Surrey.
Richard says his parents switched to the shared appreciation deal as they were struggling to meet the high repayments charged by their previous lender.
Only later did they realise the size of the debts they faced. Richard, 65, said: “My parents looked at downsizing but because they would have to pay such a big lump sum back to the bank they couldn’t afford to, so they stayed where they were.
“They were concerned about what would happen to the house once they were gone. My dad was brought up in the house and didn’t want to see it leave the family.
“The property was built by my grandfather and I don’t want to let it go. But there’s going to come a time if I can’t get an agreement with the bank when I will have to sell and give them their money.
“It’s a David and Goliath situation – the banks have all the money they need to take on the individual.”
'Dad didn't know what he was signing up to'
Year SAM taken out: 1998
Location: Caterham, Surrey
House value then: £130,000
Loan then: £30,000
House value now: £380,000
Owed now: £213,600
Bank’s profit: 612 per cent
SISTERS Lucy Lucas and Alison Cox say their elderly father William had worried about his SAM deal “until the day he died”.
Company director William Crook and wife Bridget took out a £30,000 loan on their £130,000 Caterham house for extra income. Both died this year and Barclays is now demanding the family pay £213,600 following the sale of the house for £380,000.
After realising how the soaring value of his home would affect his share, William contacted various campaign groups fighting against the deals. He even asked his then-MP Peter Ainsworth for help, but was unable to resolve the problem.
In notes left for his family, William insisted: “There is no doubt in my mind that this was a misleading offer and the full implications were not advised to me.” Lucy, 46, told The Sun: “We don’t believe our father realised what he was signing up to.
“Unfortunately he stopped challenging Barclays due to the onset of vascular dementia, and his files are quite jumbled. He worried about the loan until the day he died.”
Yesterday the family received a call from Barclays to say their complaint about the loan terms being misleading had been rejected, because the bank believes “the sales process was clear”. They are now set to take their grievance to the Financial Ombudsman.
'If I drop dead my children will be left to deal with this heavy burden'
Year SAM taken out: 1998
Location: Beckenham, Kent
House value then: £250,000
Loan then: £50,000
House value now: £550,000
Owed now: £275,000
Bank’s profit: 450 per cent
ONE 80-year-old pensioner who contacted The Sun said she was worried about dying because because of the impact of the SAM deal on her family’s inheritance.
She took out a £50,000 loan from Barclays in 1998, when her house in Beckenham was valued at £250,000.
Now it is worth £550,000, it means that with the 75 per cent appreciation of value plus the value of the loan it would cost her £275,000 to pay off the debt.
She said: “My husband died a couple of months ago and I’d dearly like to sort this out before I also drop dead and leave my children with a heavy burden to deal with.
“I tried and tried talking to Barclays but in the end I gave up. I even went to the ombudswoman and she said that I knew what the terms and conditions were.
“It would seem that far from being the ‘bargain’ short-term loan extolled by all the publicity at that time, we would have been better off taking out an ordinary mortgage and paying that off early.
“The only selling point which had attracted us was that no payments would be made until redemption, when 75 per cent of any ‘increased’ value would be due. On the face of it this seemed very reasonable.”
Ask Annie: They call it equity release but these homeowners are trapped
11 May 2008
Q. My parents took an equity release scheme out on their property in 1997 for £15,000, along with an arrangement fee of £2,000. If they sold their house now, they would have to pay the bank £150,000. I don't know what to do to help them. They have written to the bank, but have received very short shrift. Are there any pressure groups that may be able to point me in the right direction? TB, Yorkshire
A. You don't give very much detail, but I think your parents have entered into a type of equity release scheme described as a shared appreciation mortgage (SAM). The SAM seemed a good idea when it was invented. The schemes were first marketed in the mid-1990s and the two main players were Bank of Scotland and Barclays, which together sold about 15,000 of these mortgages. The bank advanced a proportion of the value of the borrower's property (typically 25 per cent), which it lent interest-free in exchange for the repayment of the capital sum plus 75 per cent of the appreciation in the value of the property when it was eventually sold – either when the borrower moved somewhere else or died.
The deal seemed a good one. You got to live in your own home, possibly until the end of your days, with no worries about repaying a loan or falling prey to rising interest rates. And you received a tidy sum that you could spend how you liked – on doing up the house, taking a nice holiday or simply supplementing your pension. If you were likely to stay in your home until you died, the amount it was sold for subsequently could be regarded as pretty much irrelevant – unless you were worried about leaving money to your children. If house prices stagnated or fell you got a fantastic deal: an unlimited-term interest-free loan. What people reckoned without was the massive and prolonged surge in house prices starting in the late 1990s, coupled with increased longevity. A 75 per cent appreciation in a property's value has come to represent a massive sum of money, hugely disproportionate to the original amount of the loan deal.
Further, because borrowers underestimated how long they would live, and the costs of maintaining their now heavily mortgaged property, they have become more inclined to want to move to other accommodation later in life. But once an SAM holder decides to move, the modest loan is suddenly transformed into a massive debt that has ballooned in line with property prices. With hindsight, the pace of this rise translates into the equivalent of an annual interest rate of around 17 or 18 per cent. The result has been that people who took out SAMs have found themselves trapped in properties where they no longer wish to be. They cannot move out without risking becoming homeless because the amount they would have left after paying back the bank does not stretch to purchasing another property.
The plight of SAM customers has become something of a scandal, and there are at least two action groups that may be able to help you. The Struggle Against Financial Exploitation (Safe) can be found online at www.safe-online.org or you can call 0208 630 9990 for more information. The Shared Appreciation Mortgages Action Group (SAMAG) can be contacted at www.samag.wanadoo.co.uk
The good news for Barclays borrowers is that the bank has set up a rescue scheme to help customers in extreme hardship. The deal allows SAM borrowers to retain all the price appreciation from the sale of the mortgaged property – which they would otherwise have had to hand over to the bank – to put towards a new home. This deal amounts to an interest-free loan to the borrower that has to be repaid only when the second property is sold or the customer dies. There has been less success with Bank of Scotland, which has been dragging its heels over accommodating borrowers in difficulty. Elaine Williams, spokeswoman for Safe, says the pressure group has been in talks with Bank of Scotland for some months and is hoping a similar deal can be agreed. She comments: "Many of our members are in real hardship."
Controversial 'Sam' mortgages go on trial
Bank of Scotland - now owned by Lloyds TSB and propped up by the taxpayer - is attempting to derail a court case that would for the first time test the fairness of controversial loans the bank made to 15,000, mainly older customers.
Trapped: Nicholas Jones and his mother Sheila took out a Sam on their house in Leeds
The loans were a form of equity release called shared appreciation mortgages (Sams), sold by BoS in the late Nineties. Half the borrowers have since died or redeemed their loans, leaving approximately 7,000 in force. Most deals mean the banks keep 75% of any increase in the property's value, resulting in the original sum borrowed more than tripling in ten years, leaving borrowers trapped in their properties and in some cases facing hardship as a result. As the controversy has grown there have been repeated calls from MPs, lobby groups and Financial Mail for BoS to take a more lenient line, or at least allow the loan contracts to be tested in court.
BoS has been reluctant, but a case is being mounted and last month achieved a significant victory. The Chief Chancery Master, a judge who decides on court procedure ahead of a trial, indicated he would allow hundreds of Sams borrowers' cases to be grouped together in a process known as a 'group litigation order'. This was a crucial step as individuals would not be able to afford legal bills that could easily run into tens of thousands of pounds. But Financial Mail has learnt that BoS's lawyers will appeal against this and attempt to prevent a group case from going ahead.
Barclays, the only other bank implicated, and which has far fewer similar mortgages outstanding, is also believed to be appealing. The lawyer representing Sam borrowers, Hilary Messer of RWP Solicitors in Pangbourne, Berkshire, told Financial Mail: 'Group litigation orders are not common, but they are appropriate in cases like this where there are a large number of people and potentially high costs.' She believes that changes to the law, introduced earlier this year, mean that Sam mortgage contracts can be successfully challenged and proved unfair. But for a challenge to be feasible it must be conducted on a group basis, she says.
The hundreds of Sam borrowers in the group have contributed privately to the costs of the action. 'Without exception, every one of my clients has complained to Bank of Scotland, but had no redress,' Messer says. 'The law has changed and their claims now have substantial merit. 'But a group litigation order is the only way to give these borrowers access to justice. The banks rely on the fact that no individual borrower has the financial or emotional resources to fight alone.' BoS has always insisted that its contracts are legitimate and that the Sams were not mis-sold.
The mortgages allowed elderly homeowners to borrow money, interest-free, against their properties. Most deals entitled the banks to keep 75% of any increase in the property's value. This would have to be repaid, with the original loan, when it was sold or the homeowner died. Since the loans were made, most properties have soared in value and homeowners' original debts have trebled or more, leaving the banks owning a growing share of the property. Nicholas Jones, 48, signed up to a Sam in 1998 with his mother Sheila, who is now in her seventies. This gives Nicholas, who does not work due to ill health, the right to live on in the house in Roundhay, Leeds, for the rest of his life, but the loan will keep growing.
Already, BoS would require almost £300,000 to pay off the £44,000 borrowed. If Nicholas lives on there for another 30 years, the loan will almost certainly reach millions if house prices rise again. 'Expecting borrowers to fully understand all the implications of these loans was a very tall order,' he says. 'If the bank didn't foresee how it would turn out, how could borrowers?' Lucy Widenka of consumer lobby group Which? believes BoS's dependence on taxpayer support presents an opportunity. 'There is a chance for banks to be forced to focus more on fairness to consumers and provide genuinely competitive services,' she says. 'We'd want to see more diverse executives among banks, with more consumer representation and better systems for redress.'
Unrepentant: We're still suffering
On this day two years ago world credit markets froze, triggering a global crisis and an unprecedented financial meltdown. But life has not changed for most customers of the UK's big banks, whether they have had to be rescued by taxpayers or not. Banks still fight for the right to charge excessive penalties to customers who go overdrawn. And they still routinely reject complaints from customers who believe they have been mis-sold expensive insurance. For Bernard Lockett, who has spent the past 20 years fighting NatWest, part of Royal Bank of Scotland, the banking crisis is especially poignant. RBS is 70 per cent owned by the taxpayer, a fact not lost on Bernard, 69, who says that a string of payment errors made by the bank nearly 20 years ago resulted in the loss of his travel business and home, and cast a shadow over the rest of his life.
Bernard, from Folkestone, Kent, has explored every avenue in his efforts to win redress but, without the means to fund litigation, has got nowhere. Last week he learnt from his MP, former Conservative leader Michael Howard, that his latest attempts to pursue the matter via the Treasury, which controls taxpayers' stakes in the banks, were doomed to fail, too. The Treasury does not want to get involved in banks' customer dealings, Howard told him. 'I can't say how often I have written politely to Fred Goodwin and the other discredited former bosses of this bank,' says Bernard, who lives in rented accommodation. 'In the end I was simply ignored. Having wrecked everything, those men have gone off with a great deal of money in their own pockets. 'I am left in the same position, except that some of the tax I pay now goes to prop up the bank that ruined me.'