A bombshell for beneficiaries
With probate solicitors finding themselves dealing with increased cases involving complex shared appreciation mortgages, specialist financial services litigation lawyer Laura Robinson, of national law firm Clarke Willmott LLP, explores the advice clients should be given.
At an already incredibly difficult time, sometimes with loved ones moving into care or passing away, donors and beneficiaries are increasingly now discovering the shocking consequences of shared appreciation mortgages (SAMs), a product taken from Barclays in 1998.
The SAMs were a form of equity release marketed predominantly to retirees as interest-free loans, with no repayments until the property was sold, or the donor moved into care or died. The marketing brochure suggested that only the capital would be repayable if property prices didn’t rise.
It sounded like a good opportunity to thousands of people, and in a matter of months, Barclays had reportedly issued around 3,000 SAMs to customers.
The catch? When the SAM was redeemed, Barclays would take 75% of the increase in value of the property, as well as the capital borrowed. A major problem here, I think, was the imbalance of knowledge between Barclays and the borrowers.
For the borrowers, access to information about house price movements wasn’t readily available in the late 1990’s and very specialist knowledge would have been required to predict future movements. Many of the borrowers had banked with Barclays their whole life and trusted the information that they were given. They wouldn’t have suspected that the SAMs were designed to take advantage of forthcoming property price increases.
Barclays, however, issued SAMs at an opportune time. The Nationwide House Price Index confirms that, in the years prior to 1996, when SAMs first appeared on the market, there had been a period of house prices decreasing, or seeing only very minor increases:-
1990: -10.7%
1991: -2.3%
1992: -6.5%
1993: 1.8%
1994: 2.1%
1995: -2.3%
However, from 1996, things began to look very different indeed:
1996: 8.3%
1997: 12.1%
1998: 7.3%
1999: 12.6%
2000: 9.4%
2001: 13.4%
2002: 25.3%
2003: 15.5%
2004: 13.9%
2005: 3.2%
2006: 9.3%
2007: 6.9%
Those potentially interest-free loans, that the SAMs were marketed as, were never to be. In fact, it has been reported that borrowers now owe more than 10 or 12 times the original sum they borrowed, with some facing debts of more than £1 million.
In terms of the consequences, there are many and none of them are good for the unsuspecting borrowers and their families.
Borrowers attempting to downsize in later life have found themselves trapped in their homes, because the little equity that they are left with isn’t sufficient to buy anything else.
For the same reason, those moving into care are discovering that they cannot afford to be in a care home of choice.
Or, where the borrower has passed away, beneficiaries are hit with a bombshell that their loved one’s primary gift will actually be going to Barclays.
Many cases are only coming to light now, with a distinct increase in cases arising in recent years. We are hearing that probate solicitors who are unfamiliar with SAMs are advising clients to approach Citizens Advice for help. Unfortunately, Citizens Advice is very unlikely to be able to help with SAM disputes and clients can be left feeling hopeless.
But there is something that can be done. If you discover that a client of yours or their estate has a SAM, legal advice should be taken as soon as possible as there are time limits within which claims and complaints must be made.
Myself and a team of lawyers at Clarke Willmott are acting for a group of claimants on a ‘no win, no fee’ basis and would be happy to have a call with anyone affected by a SAM, without charge or obligation, to discuss their options.
Arguably, these mortgages shouldn’t have been sold at all – it’s hard to believe anyone who truly understood the terms of the agreement and the consequences would have signed up – but we hope to help anyone affected now through gaining some much-deserved compensation.
Laura Robinson is a partner and financial services litigation lawyer at Clarke Willmott LLP. She is also a qualified financial adviser, providing her with enhanced expertise relevant to the claims she handles for her clients. Laura specialises in claims and complaints relating to mortgages and other financial and tax products and planning, including those regarding allegedly negligent advice given in respect of investments, mortgages, pensions and tax mitigation schemes.
