Shared Appreciation Mortgages

SpanishStu

My mother recently passed away and I am executor of her will. I have now discovered that in 1998 she took out a Shared Appreciation Mortgage which appears to mean that the bank will get 75% of any increase in value of the house (since 1998) plus the original loan, which seems excessive.

I know that there has been some bad publicty over these SAM's but is there anything that can be done about the level of the repayment?

poppy10_2

SpanishStu wrote: »

My mother recently passed away and I am executor of her will. I have now discovered that in 1998 she took out a Shared Appreciation Mortgage which appears to mean that the bank will get 75% of any increase in value of the house (since 1998) plus the original loan, which seems excessive.

It might seem excessive to you, but it obviously didn't sound excessive to your mother when she took out the loan.
She benefited from what was essentially an interest-free mortgage for the last 12 years of her life - presumably to her that was worth giving up 75% of any increase in equity over that time.
Unless you can prove she was mis-sold the mortgage (which will be difficult as she is sadly no longer around to give her side of the story) then I'm afraid there is little you can do.

SpanishStu

I note your comments but don’t agree that it isn’t excessive.

At the time the most you were allowed to borrow was 25% of the value of the property. So if a house was valued at £100,000 you could borrow £25,000. If then the house is now worth (for ease of maths!) £200,000 then the bank would get 75% of the increase in value (i.e.75% of £100,000) plus the original loan, plus (as yet to be identified) charges. So in effect the home owner would pay the bank £100,000 (i.e. £75,000 plus the loan £25,000).

That means that if the mortgage existed for 12 years the person taking out the loan would pay £100,000 for a £25,000 loan which is four times what was borrowed. No really interest free! This also equates to £694 a month for twelve years for a £25,000 loan. That I think is excessive.

The other aspect which seems unfair is that if a person wished to move they would be very unlikely to be able to afford to do so. Most of these loans were given to older people, primarily because they were too old to get a normal mortgage or were no longer earning a salary. So if a person then wanted to move say for health reasons, in the above scenario they would only have £100,000 available to buy a new home after the loan was cleared (less estate agents/solicitors fees etc.). In most cases that would make moving home an impossibility because they would have insufficient funds available for to pay cash for their new home, and obviously would not be able to get a normal mortgage.

Whilst this is clearly not the case as regards to my mother, I do think it makes these types of loan biased in favour of the banks.

Anyway perhaps someone else who has personal experience of SAM’s could pass comment. I would be particularly interested to hear from anyone who has been part of any of the action groups I believe were set up to complain about these mortgages.

Thanks.

SouthCoast

Unfair Contract Terms reporting form

http://www.fsa.gov.uk/pages/Doing/Regulated/uct/faqs/form/index.shtml

anselld

SpanishStu wrote: »

That means that if the mortgage existed for 12 years the person taking out the loan would pay £100,000 for a £25,000 loan which is four times what was borrowed. No really interest free! This also equates to £694 a month for twelve years for a £25,000 loan. That I think is excessive.

Its high but perhaps not as high as it looks - if my maths is correct that is an annual rate of about 12%. Base rates were about 7.5% at the time so about 4.5% above base.

The mortgage co. would presumably argue that the premium is in some way fair compensation for their risks, eg
not knowing when they will get any money back
not knowing (at the time) how much values would increase in future.

holly_hobby

SpanishStu wrote: »

Anyway perhaps someone else who has personal experience of SAM’s could pass comment. I would be particularly interested to hear from anyone who has been part of any of the action groups I believe were set up to complain about these mortgages.

Thanks.

The SAM class action that was being brought against Barclays and Bank of Scotland under the unfair relationship test, unfortunately failed.

SAMs were marketed in the late 90s, and were at the time seen as a solution for asset rich cash poor home owners, 75% to be fair is not an uncommon fig seen with SAMs, with the issue being the unprecedented house price explosion that happned through the 00s - meaning that the actual value of the 75% (or whatever SAM share) became excessive. However, you must also consider the fact that house prices could have gone the other way and a property crash, would there still be a complaint of SAM mortgagors, if the 75% (or whatever) equity share of the bank was pretty much next to nothing as a result - the pendulum swings both ways ...

The only other avenue, is to bring a complaint to FOS, to which you would be evidencing a mis-sale ....

EITHER that the contractual documentation demonstrates your Mum was not made clearly aware of the equity share and what it meant to her and her estate, or the basis of mge was mis-represented in any way.

OR that the POS docs of the advisor contained inaccuracies which prevented her making a balanced and informed decision ....

OR it is proven that she was a vunerable individual/had congative imparement i.e demensia etc, at the point of sale, and therefore couldn't reasonably be expected to understand the contractual arrangement she was entering

If none of the above can be proven you'll struggle, as although they don't currently have a place in todays market, there hasn't been a mis-sale or exploitation of the individual evidenced as part of the SAM sale to Mum. As it will be cited that she made a concious decision to enter into a legal agreement, having being furnished with all the material facts. It sounds harsh I know, but this is the reality and defence of any mis-sale or legal case that you may consider.

I am so sorry for your loss, and this situation, which will be making an already distressing time for the family, even more stressful - and my heart goes out to you.

I wish you well and do hope this helps settle things in your mind.

Holly x

Fruittea

Hi Holly Hobby
I saw your post and as you seem knowledgeable - wanted to pose a question. A neighbour of mine is in the same position and accepts the agreement but now wants to sell. The complication is that there is a separate part of the property (a converted shed - now a bungalow) which she owns and does not appear on the deeds (it's quite separate but uses the main houses access points - i.e. path, garden, septic tank and oil tank). She wants to ask RBS about changes to the agreement and to ask if the bungalow can buy access rights etc.

It like to hear any comments for the implications of this before she asks RBS.

Many thanks in advance.

holly_hobby

If its not fully self contained with completely sep utilities, and on a sep title deed (including planning permission for it to be a legal structure), it will remain part of the main dwelling, and at best would currently be considered as a granny annex of some sort.

Amendment of the title deed to show the structure and any change in boundaries, would only be appropriate if the bungalow had Local Authority (LA) planning permission and relevant permits, and was therefore a recognised permitted structure by the LA. Otherwise unless retrospective planning permission is obtained there may be instruction from the LA for its demoltion (if retrospective planning permission is refused).

I assume from the post, that your friend did not seek the permission of the lender for the build - which is reqd for any structural changes or amendments to the lenders suriety (of which building an (unauthorised?) bungalow in the grounds will certainly be an issue, if its presence reduces the value of the property (of which land is included) as a whole - which it may well do if there is no separate access, planning permisison etc...

If your friend is looking to sell the main property to redeem the os mge, and reside in the bungalow, then the issues raised above will ideally have to be satisfied (which would also be reqd if any mge was to be sought on the bungalow at a later stage), and to confirm are...

• planning permission (retrospective if not already in place)
• splitting of the existing title deed via land registry (purpose to identify the bungalow and its garden/land as a separate structure and under individual title from the main deeds of the house) - which means they may be sold independently of each other
• naturally fully self contained, with own independent utility provision with relevant providers (ie not shared with main dwelling)
• to qualify as a separate unit it must have its own access and entrance

Hope this helps (sorry if lengthy but hope I've covered most relevant points)

Holly x

Fruittea

Many thanks for your comprehensive response. It seems as though the bungalow was remodeled from an old outhouse (I will check and ask if it has planning permission). I've seen the land registry docs and there are two separate ones. The access used to be a tiny footpath around the side of the bungalow (now gone). This has now changed to a shared access using the main entrance.

It will seem odd to say they seem to be separate but they are. The strange thing is my friend tried to sell up last year (no buyers interested) and the estate agent included both properties in the details.

I wondered - if that sale had gone through (for both properties) would the bank have taken a % of the complete sale? Don't think it occured to my friend. As said before this seems very complicated. She has talked about asking the bank to allow a change in the boundary to allow for a complete separation - am helping to draft a note but worried about the implications.

Finally - if you wouldn't mind... Is there any chance they would consent to the boundary change without a futher cost - my thoughts from the layout is that it would detract from the value of the main house. So why would they? Just so you know, she would really like to sell up and move completely. So keeping the bungalow separate and selling it with access and at the best price seems critical.

Thanks for any comments you can offer.

holly_hobby

Fruittea wrote: »

It seems as though the bungalow was remodeled from an old outhouse (I will check and ask if it has planning permission).

It would need planning permission & bld regs sign re its conversion to residential use and its safe and compliant construction etc (if you think about when peeps convert their garage to a living space, they always need PP - its rather the same situation albeit the conversion here is of an standalone outbuilding, the principle remains.

Fruittea wrote: »

I've seen the land registry docs and there are two separate ones. The access used to be a tiny footpath around the side of the bungalow (now gone). This has now changed to a shared access using the main entrance.

Right so you're saying that the outbuilding (now a bungalow) already has its own title deed independent to the main deed and house ?

When you say main entrance, do you mean the only access is through the front door of the main dwelling ? (ie it acts as a thoroughfare to the bungalow ?)

Why did your friend convert the OH and what does she use it for ? Does anyone live in it ?

Fruittea wrote: »

It will seem odd to say they seem to be separate but they are. The strange thing is my friend tried to sell up last year (no buyers interested) and the estate agent included both properties in the details.

No, I have an outhouse that is completely sep to my main house - with access to it and my garden down the side of the house via a gate. It too resembles a (albeit very small !) bungalow .... its like a little single storey cornish cottage really all whitewashed and slate roof, we keep talking about knocking it down as its damp as hell and only filled with odds and sods and the washing machine, but its sooo cute to look at I couldn't bare it

I digress ... re the prev sale details, that suggests to me only 1 deed in existance (or the EA assumed/was told, there is only 1 deed), with the OH/now bungalow I would guess being described as a granny annex, work studio, etc - as if 1 deed the units couldn't be sold independently. (ie 2 sep sales to 2 sep buyers). EAs also don't usually check for planning permission etc - so the details including both properties doesn't mean that there is PP in place or they have checked anything regarding it.

Fruittea wrote: »

I wondered - if that sale had gone through (for both properties) would the bank have taken a % of the complete sale? Don't think it occured to my friend. As said before this seems very complicated. She has talked about asking the bank to allow a change in the boundary to allow for a complete separation - am helping to draft a note but worried about the implications.

At the moment, if there is a single title deed, then the house and OH/bungalow come as one if you like, as the bungalow stands on the land and within the boudaries forming part of the title details itself. The lender will therefore take their % (assuming this is a home reversion scheme) from what the total selling price is - as the main dwelling obv can't be sold without the bungalow accompanying it - and wout PP (or indemnity ins) it doesn't necessarily mean that the sale price will have increased as a result of the works in any event.

Fruittea wrote: »

Finally - if you wouldn't mind... Is there any chance they would consent to the boundary change without a futher cost - my thoughts from the layout is that it would detract from the value of the main house. So why would they? Just so you know, she would really like to sell up and move completely. So keeping the bungalow separate and selling it with access and at the best price seems critical.

Thanks for any comments you can offer.

Whether the lender will permit the reduction in land that a boundary and splitting of title would bring is dependant upon a whole host of things. Including how the loss of land resulting from the title split, and the construction itself, may affect the market value/desire of the main dwelling and therefore their security.

If they agree to the title split, there will of course be land registry and lender admin fees (poss conveyencing too, if they want the whole process overseen by a licenced practioner).

Hope this helps

Holly

Fruittea

Thank you Holly Hobby. This has raised and resolved many questions. I will print the discussion out and and show my friend. And if you don't mind I may come back to you. I think the way she is progressing might turn out badly so any help with this will count. I appreciate your time.

Many thanks