Homeowner group granted right to sue over shared-appreciation mortgages

Published 07th Oct 2009

A group of 300 homeowners has been given permission to sue Barclays and Bank of Scotland over a mortgage product that they claim is unfair.

The group hold shared-appreciation mortgages (SAMs), which allowed homeowners to borrow against their property interest-free for an unlimited period. In return for paying no interest, the homeowner must pay the bank a share, usually 75 per cent, of the increase in the value of their home over the period the mortgage was held.

The mortgages were sold by Barclays and Bank of Scotland, now part of Lloyds Banking Group, in 1997 and 1998 at the start of a decade-long house price boom. The SAM-holders argue that the products are unlawful because it leaves them owing the banks many times their original borrowings and strips away the benefits of house price appreciation.

Despite a correction in the housing market since 2007, the boom in house prices from 1998 means that many SAM-holders have seen their homes increase in value by four times.

The group argues that giving 75 per cent of this gain to the bank, along with the principal, means that they are paying the equivalent of up to 40 per cent interest on their mortgages in a period when normal mortgage rates have not exceeded 10 per cent.

Yesterday the 300-strong SAMs group was granted a group litigation order at the High Court. In English law, there is no automatic right to club together with others and sue a common third party.

The group, represented by RWP Solicitors, will sue the banks, claiming that the terms of the mortgages are weighted so heavily against the homeowners that they are unfair.

Hilary Messer, the group’s lawyer, said: “The bank is charging extortionate rates of interest. This is unfair and illegal as consumers are protected against this sort of behaviour.”

The group is basing its arguments on the same consumer protection laws that individuals are using to sue high street banks over unfair charges. Landlords recently won a case against unfair terms and conditions used by Foxtons, the London estate agent, with similar arguments. The judge who found in favour of the landlords is also presiding over the SAMs case.

Ms Messer hopes that the court will either nullify the mortgage contracts altogether or order the banks to lower the rates of interest.

In a statement, Lloyds said: “Bank of Scotland believes the terms of the mortgages were clear to customers when they took out their loan.”

Barclays said: “We consider that the case as it has been presented is without merit and we will defend it vigorously in the courts.”

Source: ' Times '

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