SAM Mortgages Good News for Barclays Customers

MSE_Martin

After many years of waiting, Barclays have put a rescue package in for those who have Sam mortgages. These were a form of equity release mortgage done in the 90s. Well not a bad product in the right circumstances, they were hideously sold and left many not realising what they were getting into. This left thousands in a horrid circumstance.

Barclays has now agreed to convert some of these mortgages into loans, which should go a long way to help. Sadly the Bank of Scotland has three times as many SAM mortgages holders hasn't agreed to do anything... yet! Hopefull the Barclays move will help same.

This is a subject I've spoken about many times. It was a hideous example of misselling - and its wonderful to see there's some hope - at last!

If you have a Barclays Sam contact it on.... 0800 023 2981

For further info:

Much more detail about this is available from BBC Radio 4 Moneybox.

Read Moneybox's article
Listen to Moneybox's audio item on it (for those with Real Player)

Goodluck

Martin

MarkyMarkD

MSE_Martin wrote: »

Well not a bad product in the right circumstances, they were hideously sold and left many not realising what they were getting into. This left thousands in a horrid circumstance.

I'm very glad to see some balanced commentary on SAMs - thanks, Martin. Some of the people who have previously been quoted on Moneybox and the like are honestly barking.

My personal view is that anyone who gets into a mortgage arrangement which they don't understand the implications of has a clear case against their solicitor. Solicitors should not allow their clients to enter into contracts which they don't understand - it is professionally negligent to do so. And solicitors have to have insurance against professional negligence.

But I also don't believe that the minority of those buying SAMs, or the majority of those who complain about them, didn't understand the deal. Believing that a SAM is a very expensive mortgage - because, as things turn out, their property value has increased beyond any expectation they had and consequently so has the cost of the mortgage - isn't a case for mis-selling. The same people wouldn't have been complaining now if house prices hadn't increased and they'd effectively had a free loan for more than 10 years.

SAMs were structured to be expensive if house prices rose by an exceptional amount, reasonably priced if house prices rose by a reasonable amount, and ridiculously cheap or even free if house prices rose by a small amount or not at all (or even fell). That wasn't inherently wrong. The institutions which funded the SAMs (not the banks, but people they sold the risk onto) were taking a significant gamble on house prices and the effective interest on the SAMs is their reward for taking that risk.

MSE_Martin

Hi MarkyMark

I looked very closely at the leaflets and literature for the SAMs when doing something on Watchdog about it. The problem was the illustrations (i'm doing this from memory so the numbers may be wrong - but the scale is right)

The biggest house price rise they spoke about was 5% a year - not 20% plus a year consistently for a number of years - while you and I can do the maths; many can't and therefore the lack of illustration of the impact of such a mortgage if there's a property boom means many won't have realised there was a potential of being locked in, in the way they were.

Having said all that - correctly sold - if explained; this could've been a decent product.

Martin

MarkyMarkD

But the other side of the coin is that anyone who has experience 20% increases in house prices, but who bought a SAM and hence has a large liability, is STILL quids in compared to if they had sold the property and rented, and/or downsized which were probably their realistic alternatives.

Those who I said in the first reply are "barking" are those who are happy to bank their £200k of capital gain on their property, and then are unhappy to give £150k of it to their lender. But they quite likely wouldn't have even had the residual £50k in the other scenarios. And nor would they have had lots of years living in the house they loved.

People need to remember the whole reason they bought a SAM - they didn't have much other choice at the time.

dunstonh

With a bit of luck or judgement, I kept out of this market and refused to deal in it. It always looked like an area that had the potential to go wrong and I always worked on keeping it simple and avoided high risk business areas. Thankfully, that has kept my PI cover low. Plus being an "independent" IFA, any claims for redress/compensation come out of my pocket so there is little point in a short term boost in income if its going to come back and bite you later.

The illustrations are a difficult issue. Conventional investments illustrate at 5,7 & 9% but I average 15% including last crash. I cannot say I am going to get 15% because there could be a crash tomorrow that changes all that. Plus the future is unknown. When most of these products were sold in the 90s, you have to remember that we were in a period when the housing market had slumped. I don't think anyone could have predicted the housing growth we have seen and of course there is still the potential for that to reverse.

That said, if sold correctly, the product should have been fine. I think solicitors have some blame there as they were meant to point out the terms to their clients. I think some advisers were to blame for over egging it. I also think some providers were at fault as well. It is interesting to note that it appears to be a limited number of providers here as well suggesting that perhaps their sales literature and sales process was not desirable. Plus it was a relatively new concept, in less regulated days

If property prices had grown at their long term average rate, I dont think there would be this issue. If they had lost money there certainly wouldnt have been the issue. Its only because they went up more than was expected that the issue came about. .

staceylou_3

Barclays targetted pensioners with this mortgage, and although my grandparents had all their faculties they did not completely understand the repercussions of this type of loan. My grandad has since died and my gran had no idea of just how much would have to be repaid, we understand that a loan needs to be repaid with interest but how can Barclays warrant such a huge percentage of the increase. My grandad worked so hard all his life, even building his own house so they could own their own in the fifties and now the majority of the profit will go to Barclays! I know people will say that my grandparents should have known what they were getting into etc and that they received an interest free sum of money, but it doesn't seem fair!

EdInvestor

It always seems to be like this.

New product comes to the markewt, initial terms, fees, charges etc are very much to the provider and salesmen's advantage - possibly because this is the only way to get the product sold .We saw it with personal pensions, with equity release, and we are now seeing it with "American style" annuities.

After a while if the product gets popular, more providers enter the market, and prices start to go down because of the increased competition.

The lesson is always to read the small print properly and check charges, and to make sure you have an affordable exit strategy (which rules out soime products before you even start!)

pdel61

staceylou wrote: »

we understand that a loan needs to be repaid with interest but how can Barclays warrant such a huge percentage of the increase.

I didn't think there was any interest payment on these, I thought it was interest free but that you needed to pay back 75% of any subsequent increase in the value of the house when sold.

Mr_helpful

I never had any dealings wit6h the barclays deal but I cant see much wrong wiith the BOS one the literature projected house price rises at 9% per annum which roughly was the average over the last century. people were also advised to take independent legal advice. as other posters said if prices had nopt risen we wouldnt be seeing complaints.

Hotman_2

Don't know if you could give further explanation to me. I need to sort out some nasty credit cards and other bits and pieces for which I need about £20K. I have been contemplating between FA or personal unsecured loan.

What do u think?

MarkyMarkD

staceylou wrote: »

Barclays targetted pensioners with this mortgage, and although my grandparents had all their faculties they did not completely understand the repercussions of this type of loan. My grandad has since died and my gran had no idea of just how much would have to be repaid, we understand that a loan needs to be repaid with interest but how can Barclays warrant such a huge percentage of the increase. My grandad worked so hard all his life, even building his own house so they could own their own in the fifties and now the majority of the profit will go to Barclays! I know people will say that my grandparents should have known what they were getting into etc and that they received an interest free sum of money, but it doesn't seem fair!

Saying that Barclays "targetted" pensioners with this type of mortgage implies that they chose pensioners as a target market because they are thick! This simply isn't the case. The market for equity release mortgages only makes sense for pensioners as otherwise the amount of interest foregone rolls up to too large an amount by the time the property is sold.

But, as pdel61 points out, these were NOT a roll-up mortgage. If a pensioner wanted one of them, they could probably have got one at the time. This was a distinctly different product.

If they didn't fully understand the repercussions, that's their solicitors' fault, not the lenders' fault. Remember that solicitors are paid by the borrower, not the lender, and have a duty of care to the borrower.

The products were VERY clear that, from the minute the agreement was signed, 75% of the increase in property value went to the lender.

How that can be hard to understand is beyond me.

"It doesn't seem fair" is not an argument against allowing people to enter into contracts of their own free will, with their own independent legal representation.

It is, however, an argument for their independent legal representatives doing their job properly and explaining the nature of the product to their client, if their client is incapable of understanding concepts like "75% of the increase in property value goes to the lender" themselves.