Borrowers have just months to escape Sam trap

Published 08th Oct 2009

Barclays and Royal Bank of Scotland deny the terms of their shared appreciation mortgages were unclear to borrowers

Homeowners planning to join a class action against lenders who sold them hideously expensive "shared appreciation mortgages" (Sams) have just months to act to avoid their claim being time-barred.

The loans were sold as a lifeline to largely elderly and "cash-poor, asset-rich" householders in 1997/1998 as a way of tapping into their property's equity: instead of charging interest for a large loan, the bank would usually take up to 75% of any house price rises over the life of the loan. However, spiralling house prices over the past decade mean that people who took out these mortgages now owe the banks hundreds of thousands of pounds.

Despite falls over the past 18 months, the average house price has still risen by 123% between October 1998 and today, according to Halifax. This has left thousands of elderly borrowers marooned in their homes, as any circumstances in which they would need to sell, such as a move into residential care, would trigger a giant payout to the bank – and leave them without adequate funds to move.

Last week, the High Court gave a green light to group action against Barclays and Bank of Scotland (now part of the government-owned Lloyds TSB group) for more than 300 borrowers who are fighting to shrink their huge mortgage debts to the banks legally. But nearly 12 years – the statutory limit for the claims – have passed since their sale, leaving thousands of borrowers at risk of missing out on the chance to reduce their debts in the event of court success.

Yorkshire homeowner John White typifies the experience of thousands of Sam borrowers. He took out a £41,250 mortgage on his £165,000 property from HBOS in September 1997 and now wants to move to a more suitable home.

However, the value of his property has risen to an estimated £450,000, which means he will have to pay HBOS a huge £213,750 (75% of its appreciation) sum on top of the £41,250 loan.

"We'd need to pay the bank £255,000 on the sale for borrowing just £41,250 12 years ago, and so can't buy a replacement home," he says.

On average – although Sam loans charge no interest – the lender's share of house price appreciation works out as roughly 4.4 times the original sum borrowed, equivalent to an average interest rate of 35%-40% a year. Most regular homeowners have paid a much lower interest rate for their borrowing over the same period, usually less than 10%.

12-year time bar

RWP Solicitors, which is leading the class action, warns the 12-year time bar could scupper many attempts to seek redress. "It's possible the period may start to run from as early as the date when the offer of a loan was formally accepted, rather than the date when it was made, or the date of the Sam legal charge," says RWP's Hilary Messer.

"The merits of the enormous number of complaints made about this product over the years have never been properly tested in the courts. Up to now, the banks have been able to recover Sam payments in full."

The legal case is possible thanks to changes in consumer credit law. Previous legal actions using the Consumer Credit Act 1974 relating to "extortionate credit bargains" were rarely successful because of restrictive interpretations. But thanks to the Consumer Credit Act 2006, which came into force last year, new, more flexible provisions have made it easier to challenge financial contracts. If the High Court decides the relationship between the creditor and the debtor is "unfair" to the debtor, it has wide powers to vary the terms of the loan agreement.

The Sam class action – running under the umbrella samgroupaction.com banner – believes "there are strong grounds for arguing the relationship between the bank and the Sam customer was 'unfair' for the purposes of these new provisions," a spokesman says. RWP Solicitors say certain terms within the loan agreements were "unfair" and that loan brochures were "misleading".

Last week, Barclays said the case was "without merit", and that it would defend it "vigorously" in the courts; Bank of Scotland said it believed its Sam terms were "clear to customers when they took out their loan", and was considering its options.

Any Sam homeowner wanting to join the class action can call or go to samgroupaction.com; the class action is not being undertaken on a "no win, no fee" basis, however, and claimants must pay £5,000 to join.

Hardship funds exist for Sam customers at both banks but successful application, depending on your circumstances, could rule you out of taking legal action: Bank of Scotland says hardship cash is available to anyone launching legal action while Barclays says its financial hardship support depends on applicants dropping any future legal claim.

Source: ' Guardian '

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