Page last updated at 23:49 GMT, Tuesday, 27 January 2009

Homeowners challenge mortgages

By Mick Catmull
Inside Out, BBC South West

Mortgage application form
Borrowers claim they were not given sufficient warning

Two of the UK's biggest banks are facing a legal challenge to the way they sold a specialised type of mortgage to homeowners during the 1990s.

The loans, called shared appreciation mortgages (SAM), seemed like a good idea at the time to those who took them.

About 17,000 of these home loans were sold by the Bank of Scotland and Barclays between 1996 and 1998.

They were aimed at the so-called "grey market" of older borrowers.

But some of them are now complaining they were misled and that they have been left at a severe financial disadvantage.

Cannot move

Martin Winstone visits his mother Ivy as often as he can, but it is a two-hour drive to Tiverton from his home in Oxford.

I don't think we were told what could happen
Ivy Winstone

He would like her to be closer, but even though she owns her property, she cannot afford to move, because 10 years ago her husband took out one of the SAMs.

"Luckily enough, mum at the moment is OK to look after herself, but probably in a year, maybe two years' time, we want to move her back to Oxford," said Martin.

In 1997, the Winstones borrowed 17,500 from Bank of Scotland and the deal was that they would pay no interest.

Instead, if they died or sold the house, the bank would get 75% of its increase in value.

Through the roof

Based on the previous 10 years of merely steady house price rises, this arrangement made the loan an attractive proposition - cheaper than a bank loan, for example.

Ivy and Martin Winstone
Ivy Winstone and her son Martin fear for the future

But over the next 10 years, house prices went through the roof and the Winstones' home was no exception.

When they took out their loan, it was valued at 70,000 - but now, it would fetch about 200,000.

What this means is that if Ivy sold her house now, she would have to pay back the original 17,500 she borrowed, but would also have to pay another 97,500 - the 75% of the increase in its value.

That would be a total of 115,000, leaving her with just 85,000 to put toward a new home.

"Well, I don't think we were told what could happen, as I don't think my husband would have taken it out," said Ivy.

In effect, she will have paid back almost seven times her original loan.

Dying husband

According to one expert Inside Out talked to in London, there were other more straightforward deals available at the time, such as home income plans, which would have more than halved Ivy's debt.

We found out about three weeks before he died
Maureen Putnam

Maureen Putnam's late husband also took out a shared appreciation mortgage.

She and her son Tim only discovered the paperwork when her husband was dying.

"I was devastated and we kept it from my husband, because we found out about three weeks before he died," said Maureen Putnam.

"But I found that quite difficult, because I wanted to chat to him about it and that was horrid, absolutely dreadful," she said.


The upkeep on her Dorchester cottage is high and Maureen would like to downsize, but she says she is now trapped.

The Putnam's house
A 30,000 loan for a thatched roof has become a debt of almost 130,000

That is because in 1998, Barclays lent the Putnams 30,000 to pay for a new thatch on their roof.

Their house was then worth 120,000. Today it's worth at least 250,000.

If Maureen sells now, she will have to pay Barclays a total of almost 130,000.

That would leave her, like Ivy, with less than half the value of her property.

"This is Barclays Bank, this is a big bank. Everybody - well, certainly my parents - trusts Barclays Bank and what are they doing writing this kind of contract?" asked Tim Putnam.

Unfair bargain?

The banks told their borrowers to consult lawyers, who warned them that future price rises might be higher than in the past.

But the Winstones and Putnams are now part of a group action, run by lawyer Hilary Messer, claiming that people like them were not adequately warned just how much they could end up owing.

Ms Messer's approach in previous cases has earned her the nickname of the Rottweiler.

She is citing the Consumer Credit Act's restrictions on "unfair bargains" to try to extricate her clients from their now onerous mortgage contracts.

Martin Winstone has already had his case turned down by the Financial Ombudsman Service.

Bank sympathy

The Bank of Scotland did not want to appear on Inside Out and offered no comment.

In 2007, Barclays created the hardship scheme for shared appreciation customers

Barclays spokesman

In a statement, Barclays said: "We are comfortable that we did everything we could back in 1998 to make sure that customers understood the nature of the product, but there was one thing none of us could have predicted - the unprecedented increase in house prices.

"Barclays has great sympathy for those who have experienced difficulties.

"As a result, in 2007 Barclays created the hardship scheme for shared appreciation customers," it explained.

The scheme offers those who want to move an interest-free loan - but not until they have paid off their original mortgage.

As the lawsuit gets underway, Martin Winstone faces another long drive home and his mum must say goodbye to any prospect of moving soon.

BBC viewers in the South West can watch this story in full on Inside Out, at 1930 on BBC One, on Wednesday, 28 January. Viewers outside the South West can watch the programme if they have BBC Freesat, on Channel 951. The programme will also be available on BBC iPlayer.

Print Sponsor

Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit


Sign in

BBC navigation

Copyright © 2017 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.

Americas Africa Europe Middle East South Asia Asia Pacific