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Shared Appreciation Mortgage Holders Use New Laws Against High Street Banks
As the first stage of the legal process against two high street banks, 222 homeowners with Shared Appreciation Mortgages (SAM) have sent a legal letter to the banks.
The property owners, who have each spent 5,000 pounds to be involved in the action, are being represented by a firm of solicitors, who deem a new change in the law has made it achievable for them to take legal action against their lenders over their 'unfair' loans.
With SAM's, interest on loans is characteristically frozen in exchange for the high street banks getting when the property is sold, up to 75 per cent of the rise in value of the property during the past decade when sold, as well as receiving the initial sum they lent.
In some cases, the fixed interest which is charged on the mortgage also has to be repaid, along with the initial sum lent plus up to 75 per cent of the property's gain. when it's sold. Many of these mortgages were sold throughout the UK during the years 1997 and 1998.
But 10 years later a lot of people found themselves stuck in their houses, unable to gather enough money to purchase a new property from the sale of their existing one, after paying the banks their portion of the gain.
The head of litigation at a large firm of solicitors, thinks current changes to the Consumer Credit Act make it feasible to sue the banks. Under this new act, if the court decides that the connection between a creditor and a debtor is unreasonable to the debtor, it has extensive powers to modify the terms of the loan agreement.
In the Consumer Credit Act 1974 the previous provisions applied in connection to 'extortionate credit bargains'. They were rarely invoked and seldom effectively because the courts applied the provisions in a qualified way. The new laws which have been introduced operate on the basis of a lower and more flexible threshold.
If a Court decides that the association between the creditor and the debtor is 'unjust' to the debtor, it has extensive powers to revise the terms of the loan agreement.
The head of litigation at a large firm of solicitors is seeking a decrease in the percentage of the gain that is to be paid to the bank, or restrict or curb, the amount payable to the bank as its share. In theory, approximately 8,000 people have been sold one of these mortgages, and top solicitors guess that the bill faced by banks could be multi millions of pounds.
One of the high street banks denied being aware of any legal proceedings started against it, as it has only just received letters from a company of solicitors regarding this issue. The banks said it would be inappropriate to comment on the contents whilst the correspondence is being considered.
A spokesman for the banks said that they have great sympathy for those SAM's clients who have encountered difficulties. As a solution this bank created the hardship scheme for shared appreciation mortgage clients. This came after a period of discussions with Members of Parliament and the consumer group Struggle Against Financial Exploitation.
The plan has already provided help to lots of SAM clients who found problems with moving house. By offering an interest-free loan or by giving a non-repayable grant to make alterations to their existing property. Until SAM's mature this scheme will stay open.
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