05 December 2023 , 13:51
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Up to 160 homeowners could potentially receive a compensation payout from Lloyds Banking Group after being sold "rip off" mortgages.
Solicitors at the legal firm Teacher Stern are set to represent around 160 homeowners in a case at the High Court against the Bank of Scotland, which is now part of the Lloyds Banking Group, next month. The case involves "shared appreciation mortgages" which were sold to Bank of Scotland customers in 1997 and 1998.
Teacher Stern says at the time, shared appreciation mortgages were billed by banks as being one of the "best and most generous retirement mortgages on the market". The deal offered customers the opportunity to take out a low-interest, or interest free, loan against the value of their house, provided they paid the bank a percentage of equity growth on the property when it was sold.
Some mortgage loans allowed homeowners to borrow up to 25% of the value of their homes provided they repaid up to 75% of the property’s value appreciation. However, since the late 90's, house prices in the UK have increased and this increase has seen some mortgage holder's debt rise by 500% on the amount they originally borrowed.
Teacher Stern says the repercussions of house price rises have had "disastrous consequences" as in particular, the Bank of Scotland "rushed" these policies onto older borrowers as you were only eligible if you were over 60. Now, these policyholders do not have enough money to cover the costs and move homes, move into a care facility or even pay for their care. The legal firm says these borrowers are "trapped in unsuitable homes by their substantial debts".
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Teacher Stern says thousands of these policies were sold between 1996 and 1997 and one example in the Lloyds case concerned a claimant who took out a £187,000 loan against their £750,000 London home in 1998. They now owe the bank £1.6million because the property value has climbed to £2.8million the Financial Times reported.
Teacher Stern’s case alleges that the mortgages were “fundamentally unsuitable” for consumers and “inherently unfair” under the terms of the Consumer Credit Act (CCA) 1974 due to the fact it was never capped. According to the law firm, due to amendments in the CCA in 2006, judicial control of unfair credit relationships has been significantly strengthened. This change means the CCA gives the Court powers to amend the terms of the SAM relationship to make it fairer.
Teacher Stern says: "It is arguable that SAMs would not survive judicial scrutiny and the Court would ameliorate the position of the customer to provide for a fairer outcome." The court case is set to be heard in the High Court in January however an exact date has not been confirmed as of writing.
A Bank of Scotland spokesperson told the Mirror: "Shared Appreciation Mortgages were a specialist type of mortgage available in 1997/8 which were either interest free or offered at a lower rate of interest in return for a share of any future increase in property value. We recommended that borrowers took financial advice to ensure that they understood the product, that it was suitable for their needs and all borrowers were advised by their own solicitor. Should any customer face financial hardship, we will do everything we reasonably can to help them. ”