HBOS and Barclays have recently received a legal letter prior to action as part of a multi-million pound claim being brought by law firm RWP Solicitors on behalf of up to 8,000 UK home owners who hold shared appreciation mortgages – deals that are also known as SAMs.
A recent change in the law has opened the door for thousands of home owners to sue HBOS and Barclays over supposedly unfair SAMs they have been sold, and the case could cost the banks hundreds of millions of pounds.
These mortgages were sold in large numbers throughout the country in 1997/98, and the loans were made on either a zero-interest or a fixed interest rate basis.
The overwhelming majority of the loans were made on a zero-interest basis. In these zero-interest cases, when a home owner comes to sell today the bank typically receives up to 75% of the appreciation in value of the home over the past 10 years as well as repayment of the original loan in full, in exchange for having lent only up to 25% of the value of the home 10 years ago.
In the fixed interest cases, when the home owner comes to sell today the bank typically receives up to 75% of the appreciation in value of the home in question over the past 10 years as well as the interest on the original loan over the last 10 years and repayment of the original loan in full, in exchange for having lent up to 75% of the value of the home 10 years ago.
RWP argues the result of this is that some 10 years later, thousands of home owners are trapped in homes that, when sold, will not realise sufficient value for them to purchase suitable replacements.
The problem is so severe that Barclays has introduced what it calls its Shared Appreciation Mortgage Hardship Scheme. But, as RWP maintains, this neither provides compensation nor changes the terms of the original mortgages, fixing the percentage of the appreciation payable on repayment of the loan to banks. HBOS has not introduced a hardship scheme.
Meanwhile, hundreds of home owners are taking advantage of recent changes to the Consumer Credit Act 1974 to sue HBOS and Barclays in a group action.
“The previous provisions of the Act applied in relation to ‘extortionate credit bargains’,” says Hilary Messer, head of litigation at RWP. “These were seldom invoked, and when they were actions were rarely successfully because courts applied the provisions in a restrictive manner.
“The new provisions which have been substituted – and which are retrospectively effective – operate on the basis of a lower and more flexible threshold.
“If a court determines that 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,” adds Messer.
“Leading counsel has advised that there are strong grounds for contending that the relationship between the bank and the holder of the SAM was unfair for the purposes of these new provisions. He has also advised that certain terms of the original loan agreements were in themselves unfair, and also that the terms contained in the brochures issued by the banks were misleading in a number of respects.”
Messer confirms that the relief that will be sought from the courts will include a reduction in the percentage of the appreciation that is payable to the bank. Alternatively, courts will seek the introduction of a cap or limitation on the amount payable to the bank as its share of the appreciation.
Known to her clients as ‘the Rottweiler’, Messer’s career shows she is not afraid to take on large institutions in pursuit of redress for clients but in view of the length of time since SAM mortgages were sold there is a potential limitation problem.
In October 2001 Messer won a landmark judgment in the House of Lords, which affected every small business, institutional lender and solicitor in the country. (UCB Home Loans vs Moore – conjoined appeals with Royal Bank of Scotland vs Etridge.)
Messer also won a case against Eagle Star in the High Court following an eight-day trial. The insurance giant appealed, but the Court of Appeal unanimously found in her client’s favour (Kausar vs Eagle Star).
More recently, she has acted for vicLStims of the Paddington train crash.