Beryl Hutchinson and her son, Steve (Image: BBC)
Shared appreciation mortgages (SAM) have been a subject of concern and controversy for many years as customers are left to pay thousands to the bank once their property has sold.
These mortgages have sparked fury due to the substantial share of the property’s gains the lender would receive when the property was sold, often as much as 75 percent.
This is what happened to Beryl Hutchinson, who now fears losing her home as she has to repay £165,000 on a bank loan of £16,250 taken out by her late husband in the 1990s. She only just found out her husband has taken out a SAM.
On BBC’s You and Yours she said: “I was horrified to think a bank could take 75 percent. We could end up with no house.”
Her late husband took out the loan and thought only the original £16,250 would finally need to be paid back. She only just discovered this was not the case.
Lenders provide a loan to the homeowner at a lower rate for a share of the property’s future value (Image: GETTY)
Lenders provide a loan to the homeowner, typically at a significantly lower interest rate, in exchange for a share of the property’s future appreciation.
Some borrowers argue that the terms of these mortgages were not made sufficiently clear, which has led to these unexpected debts needing to be paid down the line. Experts have spoken exclusively with Express.co.uk to warn those with a SAM that they may have been exploited urging them to seek legal and financial help as soon as possible.
Gary Hemming, financial expert and an owner at ABC Finance explained given the controversy and potential legal issues, the UK Financial Services Authority (FSA) stepped in to oversee the sales and marketing of SAMs, imposing restrictions and regulatory controls.
My Hemming said: “The FSA has encouraged homeowners with existing SAMs to reach agreements with their lenders regarding repayment.
SAMs were most notably sold by Barclays and the Bank of Scotland between 1996 and 1998 (Image: GETTY)
“While these mortgages are not illegal, they raised serious ethical concerns and led to regulatory action to protect homeowners from what was seen as excessive exploitation of property appreciation. Homeowners considering SAMs or those with existing agreements should consult legal and financial professionals for advice and guidance.”
SAMs were most notably sold by Barclays and the Bank of Scotland between 1996 and 1998 and allowed homeowners to access a lump sum of money in exchange for giving up a portion of the property’s future appreciation in value.
Although they were “offered within the bounds of the law at the time,” Pete Mugleston, mortgage expert, explained the ethical issues and debilitating financial consequences of these loans have led to criticism and calls for regulation.
He stated unless the mortgage industry learns to have open communication with SAM customers on the impact of their situation, and help find a solution, “I expect legal battles on the matter to continue for years to come.”
Borrowers are having to “pay hundreds of thousands of pounds to settle” their SAMs (Image: GETTY)
Mr Mugleston suggested those affected should get in touch with their lender and find out what their future options could be.
Barclays, for example, offers the Shared Appreciation Mortgage Hardship Scheme, which could provide support to customers who bought the lender’s shared appreciation mortgage and are now facing substantial hardship.
However, in order to qualify, you need to prove that you’re facing difficulties due to illness, disability, decreased mobility or a change of financial circumstances; not all customers will get approved under the scheme.
There have been examples of customers taking out a loan of £200,000 and after 20 years having to pay back up to £2.5million representing 75 percent of the appreciation in value of their homes.
Whilst this is at the more extreme end, the vast majority of borrowers are having to “pay hundreds of thousands of pounds to settle” their SAMs, Trowers & Hamlins stated.
In 2021, Teacher Stern LLP successfully negotiated a settlement with Barclays Bank on behalf of 37 clients who took out Shared Appreciation Mortgages in the late 1990s.
Commenting on the settlement Trowers & Hamlins wrote: “This represents only a tiny fraction of customers who took out a SAM with Barclays and who are either still trapped in their homes unable to sell, or who have now passed away and it has been left to their estates to find out about and deal with the draconian consequences of the SAM.”
While SAMs can provide initial financial relief, Britons are warned of the longer-term pitfalls attached to them. Brad Banias, the founding partner of Banias Law and Pro Se Pro recalled a client he had that faced issues due to the scheme.
Mr Banias said: “This situation not only eroded the profit my client was expecting but also created a financial strain as they navigated their next home purchase.
“It was a stark reminder that while SAMs can provide initial financial relief, the long-term implications can be quite stark if the market conditions sway dramatically.”
A Barclays spokesperson said: “Before a shared appreciation mortgage was completed and the funds were released, customers were required to seek independent legal advice and confirmation was obtained from the customers’ solicitors that the terms of the legal charge and mortgage conditions had been fully explained to them.
“This was done to ensure customers fully understood the nature of their borrowing. The product literature also encouraged anyone interested in a shared appreciation mortgage to discuss their intended borrowing with their family.”
