Borrowers 'trapped' into repaying a fortune can now sue their lenders
Ever heard of a SAM?
Some borrowers wish they hadn't – but the tables might soon be turned.
SAM stands for Shared Appreciation Mortgage, an idea which must have seemed like a great one at the time...
The concept was straightforward: borrow now at 0%, just share some of the rise in property's value with your lender when you sell. These deals were introduced in 1997 and were sold to around 12,000 homebuyers before they were phased out a year later.
However, the problem was twofold: typically the split was 75/25 in favour of the mortgage lender, and borrowers in 1997 simply didn't foresee the huge rises in house prices over the decade to come.
This means that some borrowers are facing repayments of three or four times what they originally borrowed – equivalent to mortgage interest rates of 30 or 40 per cent.
That's why legal action has just been given the green light.
A group of 326 homeowners with Shared Appreciation Mortgages from Barclays and Bank Of Scotland have been granted a Group Litigation Order from the High Court, meaning they can pursue their claims collectively rather than on a case-by-case basis. The legal argument hinges on recent changes to the Consumer Credit Act. Solicitors acting for the group hope to obtain limits on the amounts, or the percentage of the appreciation, that banks can reclaim from borrowers on SAM contracts.
If this first group is successful, it is expected to pave the way for other homeowners to raise SAM counter-claims against their mortgage lenders.
You can see why the claimants are relieved to be able to present their case: imagine if you had borrowed £50,000 on shared appreciation terms, seen a £150,000 increase in your home's value and had to find £115,000 to repay your bank whilst trying to find another home to move to. It's not quite the same as negative equity, but the effect is much the same.
Besides, entering the market at the right time but then missing out on a share of the steepest rally in house price history is bound to make borrowers keen to atone for their misfortune!
No comment from either Barclays or Bank Of Scotland yet, but watch this space.
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