Homeowners win right to sue banks over "unfair" mortgages
Published by Jane Gething-Lewis for 24dash.com in Housing and also in Bill Payments
UK banks facing tough tests
A group of more than 300 homeowners have won the right to sue Barclays and Bank of Scotland over mortgages they claim are unfair.
The homeowners have been granted a Group Litigation Order by the High Court, enabling them to take legal action against the banks over Shared Appreciation Mortgages (Sams).
The mortgages enabled people to take out loans secured against their homes at 0% interest or a reduced fixed rate.
In exchange for the low interest rate, people have to pay an additional charge when they repay the mortgage, typically of around 75% of the increase in the value of their property since the loan was first taken out.
Despite recent house price falls, the steep price rises seen between 1997, when the loans were first available, and 2007, mean the lender's share of the home is often about 4.4 times the amount that was originally borrowed, the equivalent of an interest rate of between 35% to 40%.
It is not unusual for people to have seen a £200,000 jump in the value of their home during this period, meaning someone who had originally borrowed £25,000 would have to repay £175,000.
As a result, many people with the mortgages have found themselves trapped in their homes, unable to raise enough money to buy a new property from the sale of their current one, after paying the banks their share of the appreciation.
It is thought that about 12,000 Sams were sold in the UK between 1997 and 1998, when they were withdrawn from the market, with about 7,000 still in force.
The Group Litigation Order, which was granted yesterday, means that people can sue the lenders as a group, rather than on an individual basis.
The case is being handled by RWP solicitors, with 126 claims filed so far and a further 200 currently being processed, but the number is expected to increase significantly now the group order has been granted.
The group action is expected to cost homeowners about £5,000 each.
Hilary Messer, of RWP solicitors, said: "Up to now, the banks have been able to recover payment in full under Sams and the merits of the enormous number of complaints made about this product over the years have never been properly tested in the courts.
"Recent changes in the Consumer Credit Act, which have yet to be considered by the courts, will assist the claimants.
"We are delighted the Chancellor of the High Court has consented to these cases being dealt with on a group basis, as this is the only practicable way that ordinary homeowners can take on the banks in litigation which is likely to raise complex issues of law and fact."
Ms Messer is seeking a reduction in the percentage of the appreciation that is payable to the bank, or a cap or limitation on the amount payable to the bank as its share.
A spokeswoman for Bank of Scotland, which is now part of partly nationalised Lloyds Banking Group, said: "Bank of Scotland believes the terms of the mortgages were clear to customers when they took out their loan but does recognise that the arguments the Sams borrowers wish to raise should be brought before a court as quickly and efficiently as possible.
"However, given the very different circumstances of the individual borrowers, the bank does not believe that the one-size- fits-all nature of a group litigation approach is appropriate. The bank is therefore currently considering its options.
"In the meantime, the bank will continue to consider on an individual basis, and to respond appropriately to, cases where genuine hardship has arisen."
A Barclays spokeswoman said: "The issuing of the Group Litigation Order (GLO) yesterday was only the first step in the litigation being brought by the Sams claimants and follows on from the application for the GLO which was sought at a hearing on 14 July 2009.
"The GLO merely formalises the procedure which the claimants are now to follow and does not involve any decision on any of the major issues in the case.
"There has been no adverse finding whatsoever against Barclays - we consider that the case as it has been presented is without merit and we will defend it vigorously in the courts."