MSE News: Homeowners to sue banks over 'unfair' mortgages

Former_MSE_Guy

This is the discussion thread for the following MSE news story:

"More than 300 homeowners who claim the mortgages they took out were "unfair" have been given the right to bring a group action against Barclays and Bank of Scotland ..."

Read the full story:
Homeowners to sue banks over 'unfair' mortgages

ps - This thread began before the news story was published so we have merged the two discussions to prevent duplication. Thanks to loup67 for the original post.

loup67

Tuesday, 6th October 2009 10:36
A group of more than 300 homeowners have won the right to sue Barclays and Bank of Scotland over what they claim were unfair mortgages.
The borrowers have been granted a Group Litigation Order (GLO) against the banks over Shared Appreciation Mortgages (Sams) taken out more than 10 years ago.
BOS - since swallowed up by the part-nationalised Lloyds Banking Group - and Barclays tried to block the move, which allows the homeowners to sue on a group, rather than an individual, basis.
Barclays said it considered the case "without merit", while BOS also disagreed with the decision paving the way for group action.
The schemes, only available in 1997 and 1998 before being withdrawn from the market, allowed borrowers to take out loans secured against their homes, at a zero or reduced fixed rate of interest.
However, on repayment of the loans, they had to pay back an additional charge of up to 75% of the increase in the value of the property during the lifetime of the loan.
Their repayments ended up rocketing because of the sharp rise in house prices in the decade to 2007.

With a zero interest Sam, the lender's share of the appreciation is now an average of 4.4 times the amount borrowed.
This is 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%.
In a typical case - such as a house worth £100,000 in 1998 and now worth £300,000 - this would leave a homeowner who borrowed £25,000 at a zero rate of interest having to repay a total of £175,000.
It is estimated that a total of 12,000 Sams were sold in the UK, of which around 7,000 may still be unredeemed.

Hilary Messer of RWP solicitors, which is representing the borrowers, said: "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."
A spokesperson for BOS said: "Bank of Scotland believes the terms of the mortgages were clear to customers when they took out their loan but does recognise that the arguments the Sams borrowers wish to raise should be brought before a court as quickly and efficiently as possible.
"However, given the very different circumstances of the individual borrowers, the bank does not believe that the "one size fits all" nature of a group litigation approach is appropriate."
Barclays - which currently accounts for just one individual within the GLO, said: "There has been no adverse finding whatsoever against Barclays - we consider that the case as it has been presented is without merit and we will defend it vigorously in the courts

Please contact Hilary Messr of RWP solicitors if you have one of these SAM mortgages and join the group action

http://www.rwp-solicitors.co.uk/contact.php

ILW

I for one cannot see which part of the deal is unfair.

mystic_trev

ILW wrote: »

I for one cannot see which part of the deal is unfair.

Agreed - They should have gone to Specsavers

paulj2001

Agreed! In the late 90's, people were still smarting from the crash and thought house prices wouldn't go up so they gambled on SAMs being a good deal to buy a house at 0% interest and they lost out but that doesn't mean you should get your money back! It's the bank's good financial sense that house prices rose and they should make the profit. I have no sympathy whatsoever for greedy homeowners!

EdInvestor

It seems clear that the way things have worked out is that the two sides have not 'shared the appreciation' ,but rather one side has taken the lion's share, leaving the other in a position where not only can they not benefit from the plan, but are in effect prevented from moving as their share of the value is too low to buy a replacement property.

At the very least this looks disproportionate, indeed punitive.Although mortgages were not regulated in those days, if a deal like this was sold to a borrower and this possible end result was not spelt out now, then it would be a clear case of misselling.Banks have always had a duty of care to treat their customers fairly and this is a good example of a situation where adjustments should be made.

Degenerate

EdInvestor wrote: »

It seems clear that the way things have worked out is that the two sides have not 'shared the appreciation' ,but rather one side has taken the lion's share, leaving the other in a position where not only can they not benefit from the plan, but are in effect prevented from moving as their share of the value is too low to buy a replacement property.

That doesn't stop them from moving, it stops them from buying. At any time they could have got out of the deal by selling up to rent, or remortgaging to a conventional mortgage (if they were able to raise a big enough mortgage to cover the current value). What's more, as they borrowed at low or zero interest, they would still have made a profit - just a fraction of what they would have made with a conventional mortgage.

Those that made a bad bet and then sat on their hands for 12 years while the scale of the losses grew don't get a lot of sympathy from me.

dunstonh

Logic should dictate that they lose the case. You cant have your cake and eat it.

However, the way some decisions seem to be going nowadays, they will probably win.

ILW

I wonder if prices had stayed static and the banks had asked for some extra money to cover their loses, would these people have agreed to pay some interest?

koexelek

ILW wrote: »

I wonder if prices had stayed static and the banks had asked for some extra money to cover their loses, would these people have agreed to pay some interest?

Agreed.

The borrowers and the lenders both took a gamble on those mortgage.
The lenders won, and the borrowers lost, but it could have gone the other way.

To squeal about it now is a bit like demading your money back from the bookies because your horse didn't win

loup67

Degenerate wrote: »

That doesn't stop them from moving, it stops them from buying. At any time they could have got out of the deal by selling up to rent, or remortgaging to a conventional mortgage (if they were able to raise a big enough mortgage to cover the current value). What's more, as they borrowed at low or zero interest, they would still have made a profit - just a fraction of what they would have made with a conventional mortgage.

Those that made a bad bet and then sat on their hands for 12 years while the scale of the losses grew don't get a lot of sympathy from me.

The majority who took out SAM's were elderly people who wanted to free up some equity in their properties,mainly because they were their only assets and they have a limited income.
I don't see how they could just rent or remortgage when the majority of them are pensioners!Who is going to give a pensioner on state benefits a mortgage when they clearly haven't got any income to repay it?When they were originally sold they were not made aware of what could happen,do you know anyone who would willingly agree to paying back 5 times the original loan after 12 years?I seriosly doubt it,let alone the fact that the investors got cold feet after a couple of years as they couldn't see how they were viable.
You seem to believe they were seen as a free mortgage,which is odd as anyone would have to be crazy to believe that they could make any money out of these,even short term!
The banks typically under value the property price at the time of the loan and then would lend 25% ,when it comes to redeem the loan they over value and that is the figure to be repayed,even if that isn't the price you receive from the buyer.Therefore people were having to pay back more than 75% of the increase,some were left with only £10,000 after paying off their loans!
Virtually every SAM owner is not in a very good financial position to fight this alone,and the banks know that,the group action is the only way they can do this.
I think there are some very genuine cases who I for one are very pleased will get their chance to fight this,good luck to all in this situation.