Shared Appreciation Mortgages (SAM)

PeterMcEvoy

My Mother died recently and in her will the estate was left to my sister and I. The bulk of the value of the estate is of course the house which is valued at £250K and is now on the market. However there is a problem. This being the above. Approximately 11 years ago my Father took out a Shared Appreciation Mortgage with the Bank of Scotland (not Royal Bank) and his understanding was that they "owned" 25% of the value of the house but this has turned out not to be the case.
Once the house is sold we will have to hand over 75% of the difference of what the house was "worth" in 1996 approximately £80K and the current value - £250K. This would give the bank around half of the money raised from the sale. This is appalling. Don't get me wrong, we are grateful that our parents will have bequeathed around £120K between us but I feel it is immoral that this "deal" is lawful and the house that our parents paid for and felt proud that would one day give their children some financial security is now worth only half what the sale will bring. I have sought advice about finding a way around this but have been assured there isn't. Does anyone have a view or suggest a way forward to prevent the BoS getting their greedy hands on the money, or at least reduce the amount they will claim?

ginger_nuts

Your parents must have agreed to this .
Did you or your parents have the paperwork independently checked .These schemes are not run as a charity ,they do help elderly people remain in there own home and release some capital .There is always a price to pay .

I understand that you expected to retain more from the sale ,indeed I would have expected the same .

This should be a warning to others thinking off doing the same ,get all your paperwork double checked .

dwight-van-man

PeterMcEvoy wrote: »

. Does anyone have a view or suggest a way forward to prevent the BoS getting their greedy hands on the money,

sounds like its more than just the bank with greedy hands in this situation....

roswell

The answer is in the title really,

They signed over X % over the years the banks percentage increases with the value. Its a form of equity release.

Mr_helpful

The bank of scotland documentation was very good for this product and projections were shown assuming house price growth of 9% (this is roughly the average growth for the last century) There was also advice for people to take legal advice so I doubt there is anything you can do other than be happy your parents were financially ok before they died

wardlaw

I have actually come across, a situation, like this on only 2 occassions

Unfortunately ,the 25%/75% split, as in your parents case, is legally binding I am afraid and nothing can really be done It allows elderly people to remain in their homes and have a good life without financial stress ,long into their retirement

The bank would have in effect mortgaged the property and released monies to your parents,either in the form of a lump sum or a monthly income

On the 2nd life's death, A percentage of the , new valuation of the property has to be paid back to the bank, with any surplus going to the beneficiaries

In your case it is 75% of the current valuation That is the way the bank are repaid

MortgageMamma

Wardlaw, you need to amend your signature to the black and red one that all the other advisers have, its site rules mate.

Mine is an example of the correct version.

MM

MarkyMarkD

The way the OP's father explained his understanding of the SAM deal was far away from the truth.

AFAIK BOS advanced 25% of the value of the property in exchange for 75% of the future capital growth in the property value. They didn't get any repayments or interest on the 25%.

BOS (or the investment vehicles to which they in fact sold the value of these mortgages to) were taking a very big gamble on house prices. If house prices hadn't increased at all over the 11 year period, they would have got nothing back at all. If house prices had increased by a sensible amount, they'd have got a sensible return on their investment. As house prices have increased phenomenally, their return is high - but equally well, every single person who had one of these mortgages (or, in most cases, their descendants) have benefitted from above-expected increases in property values.

Given that for most people the alternative to taking out a SAM was to downsize (which would have meant a less comfortable retirement, and a reduction in capital growth on the smaller property in any case) and the severe risk that BOS and their investors were taking, I really think it's wrong for people to complain about these deals now with the benefit of hindsight.

The time to have done something different (like giving your parents a big lump of your own money, for example) would have been 11 years ago - but that would have required your parents to discuss the plan with you before they entered into it. If they didn't want to, that's their prerogative and the consequences of the deal are yours without any basis for you to challenge it.

Would you have really wanted to give your parents £20k as a gamble on 75% of their house price increasing by more than that amount by the time they died and left the property to you? Did you have that £20k spare?