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After years of campaigning, Barclays has finally caved in and decided to offer assistance to thousands of elderly homeowners who suffered financial and physical hardship after signing up to much-criticised shared appreciation mortgages (Sams).
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TRAPPED: Frank Cooksey would need £100,000 to pay off his original £15,000 Sam loan |
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They allowed elderly homeowners to borrow money, interest-free, against their properties. Though no interest was charged, the deals entitled the banks to keep 75% of any increase in the property's value. This would have to be repaid, with the original loan, when it was sold or the homeowner died.
Since the loans were made, most properties have more than doubled in value. The result has been that homeowners' original debts have trebled or more and the banks now own a growing portion of the total property.
Worst of all, Sam borrowers who can no longer live comfortably in their homes because of disability, or who cannot afford to maintain them, have become trapped, like D-Day veteran Frank Cooksey.
Frank, 86 this year, borrowed just £15,000 with a Bank of Scotland Sam deal in 1997. In 2003, when his wife died, he contacted the bank to see how much it would cost to pay off the loan. By then it had grown to £65,000.
Today, given the rise in value of Frank's house in Barmby Moor, North Yorkshire, he would need more than £100,000 to pay off his Sam. That would not leave enough to buy another property. Frank says he is pleased for Barclays' Sam borrowers, but says: 'For those of us with Bank of Scotland, the fight goes on.'
Barclays' change of heart comes after much campaigning by Financial Mail and others, notably Safe, the lobby group whose name stands for Struggle Against Financial Exploitation.
Under Barclays' Sam 'Hardship Scheme' to be launched today, those who want to move home will have the option to borrow the money required to pay off their Sam debt, free of interest and free of repayments. This loan would allow them to settle the Sam, sell their property and use the proceeds to buy a more suitable home. But the debt would attach to their new property and must still be repaid.
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Though this may be a lifeline for some, the scheme itself presents some risks. The biggest of these, says equity release expert Dean Mirfin of adviser Key Retirement Solutions in Preston, Lancashire, is that once the Sam is paid off, the debt is crystallised.
This could be dangerous, according to Mirfin, if property prices fall. 'While the Sam is in force, the amount owed can never exceed the value of the property,' he says. 'However, that will not be the case if the Sam is paid off and converted into a loan.'
In other words, there is a risk of negative equity. Separate from its offer of a loan, the bank is prepared to make grants or gifts of small sums to needy borrowers who want to stay in their homes but need modifications to be made.
Barclays will contact only those Sam borrowers who have already told the bank that they are in difficulties. But others can ask for information on the hardship scheme by phoning 0800 023 2981 from tomorrow.
Elaine Williams of Safe welcomes Barclays' offer, but maintains that the way the debts have mushroomed is unfair. Homeowners, or their beneficiaries, will still have to pay the money, she says.
Williams is now keen that HBoS follows Barclays' lead. 'Barclays has worked with us, but HBoS has been obstructive,' she says.
HBoS says: 'We sympathise with customers who may have had difficulties after taking out a Sam. We have always helped where we can on an individual basis. We have written to arrange a meeting with Safe and will study Barclays' announcement with interest.'
Other stories:
Are we stuck with SAM?
Equity release pitfalls
Snared by loan with 300% charge
Savaged by Sam
Sams victims unite
WANT TO KNOW MORE?READER COMMENTSComments so far (6)
1.
If you decide to take out a loan to clear the Sam debt do you have to sell your house immediately, as jobs would be needed to be done which would take time to put it on the market.
- Maureen Nankivell, Gravesend
Posted: 20 June 2007, 8:22am
2.
My sister has a Sam mortgage, her husband has now died and she is in a rather large property because of the Sam is unable to sell. If she gets the Barclays loan how is she expected to pay it back, she is a pensioner.
Please can you explain how a bank is allowed to get away with this sort of thing?
- Jill Clare, Milton Keynes
Posted: 5 September 2007, 3:40pm
3.
I too have a Sam. I foolishly thought that the 75% the bank would take was from the 25% only, and any price increase on the property was solely attached to this 25% and not the whole of the value of the property. I am mortified to think the banks can get away with this kind of treatment, it far beats highway robbery and really the Government should step in and sort something out.
- L Pope, Manchester
Posted: 8 September 2007, 2:50pm
4.
Sorry I just don't buy it! And neither should these people, what were they expecting a free lunch. Apparently there is no such thing.
Regarding the lady in the MOS who could not find a house for 200K in the Leeds area! Wake up there are lots of property in that range.
These people seemed to want the deal both ways.
If house prices had fallen would they feel sorry for the bank?
Not saying the deals are right but they made them.
- Shaun Beal, Doncaster
Posted: 7 October 2007, 3:02pm
5.
When is the Bank of Scotland going to offer a solution to SAM mortgsge holders.
- Mike Godfrey, Hampton Court Surrey
Posted: 28 October 2007, 12:43pm
6.
Hi. This kind of article infuriates me beyond belief. What did these people expect? Did they not do the simple calculation which would have shown them how much they would potentially owe? If they were incapable of doing this then perhaps they should have considered the fact that they were maybe not clever enough to buy a house in the first place? What also infuriates me is when I hear these people moaning and blaming the banks .... It is NOT the banks fault, it is YOURS. Take some responsibility for Gods sake. These people expected a free lunch and now must be made to pay. I am a shareholder in HBOS and some of this outstanding money therefore belongs to me, I hope that the banks management press hard to get it back on my behalf. I can't believe Barclays has backed down.
- Andrew, West Yorkshire
Posted: 6 January 2008, 1:38pm
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