In 1997 and 1998 Barclays (and Bank of Scotland) sold the infamous Shared Appreciation Mortgage (SAM) to its unwitting customers. The world then was a completely different place to the world now, in particular, bank managers were seen as close friends and trusted confidants who would only sell you a loan if it was in your best interests, suitable and - above all else - fair.
What customers certainly did not expect at that time was for Barclays to sell them a loan that would inevitably lead to Barclays receiving a huge financial windfall whilst at the same time depriving the customer of virtually all equity in their family home which they had worked all their lives to buy. Unfortunately, this has been the stark reality for virtually all Barclay's customers who were unfortunate enough to have been sold a Shared Appreciation Mortgage (SAM).
Who invented the Shared Appreciation Mortgage?
The SAM was, unknown to Barclay's customers, dreamt up by investment bankers who were no doubt being advised by astute property market analysts who had detailed forecasts of the UK property market, and its past and future predicted performance.
It is no coincidence that SAMs were marketed and sold aggressively to elderly and loyal Barclay's customers immediately before the UK housing market exited a long period of stagnation and was followed by over a decade of substantial property price rises. It is also unlikely to be a coincidence that the SAM product was only sold for a period of approximately 6 months before they were immediately pulled from the market, never to be seen again.
How did the SAM work and what was the effect?
The SAM product typically allowed the customer to borrow up to 25% of the value of their home. No interest was payable during the course of the loan but when the borrower came to sell their home (or, as we have found more typically, died leaving their family to sell), they would be required to pay the bank 75% of the appreciated value in their home.
We have seen examples of customers taking out a loan of £200,000 and after 20 years having to pay back up to £2.5million representing 75% 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 and significantly more than Barclays could ever have imagined making on other equity release mortgage products, or consumer loans generally. So damaging has been the impact of these loans on borrowers that even Barclays itself has had to set up a hardship fund, which is essentially a further loan facility of very limited benefit.
SAM borrowers have invariably found themselves financially trapped in their homes unable to sell because 75% of the equity in their home had been taken, while the value of properties around them have soared making them unaffordable given the financial burden of the SAM.
Settlement
It was recently reported that 37 SAM borrowers have settled claims with Barclays regarding the mis-selling of SAMs. 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.
The fact that Barclays has settled these claims strongly indicates that Barclays know these loans should never have been sold and that the risks were never properly explained to their customers. As Barclays has recently settled these claims, now is the best time to contact us about making a formal claim against Barclays if you have or know someone who has been mis-sold a SAM.
Who has been affected?
Trowers and Hamlins LLP are currently challenging the terms of these SAMs on behalf of a number of clients. Many of the SAM clients we are instructed by fall into one of the three categories below:
- The original SAM customer trapped in their home unable to sell because they would not be left with sufficient funds to purchase another home in their area.
- Relatives of deceased SAM customers who are dealing with their late parent's estate who have discovered the SAM and its disastrous impact on the family's finances.
- Beneficiaries of estates affected by a SAM, including charities and hospices for example.
Get in touch
We have many years of experience advising on banking disputes including for mis-selling financial products. We have recently added to that experience with Christopher Philpot recently joining us who originally started the group litigation action against Barclays that has now settled.
We would encourage anyone who currently has a Barclays SAM, or who has previously redeemed a Barclays SAM to get in contact with us on +44 (0)20 7423 8590.
Shared Appreciation Mortgage FAQs
- What is the purpose of a Shared Appreciation Mortgage?
For the consumer, the Shared Appreciation Mortgage (SAM) was a loan in the form of equity release, but with the requirement to pay back 75% of the appreciation in the value of their home when the loan came to be repaid. There was no loan period: the intention was for it to be repaid once the borrower died or when they needed to downsize. Often downsizing became impossible because house prices had increased significantly, but the SAM borrower would stand to lose 75% of the appreciation in their own home as a result of the SAM. This meant borrowers frequently became financially trapped in their homes unable to downsize in their local area.
The more cynical answer to this question is: to make the investment bankers who designed the SAM a very significant financial profit from the equity in the UK residential property market, which they likely predicted, with near certainty, would increase substantially over the decades which the SAM was expected to last.
- Can you get out of a Shared Appreciation Mortgage?
The good news is that we believe SAM borrowers will have a good prospect of successfully challenging the enforceability of the loans they took out because the product will be classified as unfair under the Consumer Credit Act 1974.
If you or a family member are unfortunate enough to have a SAM and you do not legally challenge it, you will have no option but to redeem the mortgage in line with terms of the mortgage.
Please contact us to find out how you can challenge the enforceability of a SAM. Our team has experience of acting for clients who have challenged and settled with Barclays after disputing the enforceability of these mortgages.
- Can I still challenge a Shared Appreciation Mortgage?
Even though SAMs were sold some time ago (and for a very limited time), you may still be able to bring a claim to challenge their enforceability. You should seek legal advice to see what options are available to you.
- What is an appreciation Mortgage?
SAMs are sometimes referred to as a type of appreciation mortgage. This is because the amount of money you pay back to the bank is dependent on the level of appreciation in the value of your home over the course of the mortgage.
- What is a shared equity mortgage?
A shared equity mortgage is sometimes used as a way to describe a Shared Appreciation Mortgage because the borrower is effectively 'sharing' a proportion of the increase in the equity of their home with the bank. In the case of the SAM this was generally in the region of 75%.
