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October 1, 2008

New SAMS compensation challenge to HBOS and Barclays

by Gill Montia

Story link: New SAMS compensation challenge to HBOS and Barclays

As Lloyds TSB considers its takeover terms of HBOS, it should be aware that the latter may be liable for millions of pounds in compensation to the holders of Shared Appreciation Mortgages (SAMS).

HBOS, which comprises Halifax and Bank of Scotland, sold the interest free loans back in the 1990s but recent changes in the Consumer Credit Act 1974 mean that holders of the controversial SAMS may be able to obtain compensation.

SAMS provided a loan secured against the future equity growth of a property.

Under the arrangement, the SAMS provider is only repaid if the property is sold or on the death of the mortgage holder.

The majority of the loans were made on a zero interest basis, with banks typically receiving up to 75% of the appreciation in value of the property as well as repayment of the original loan, in return for having lent only up to 25% of the property value.

According to the SAMS action group, a house worth £100,000 in 1997 could now be worth £282,251, meaning that a homeowner who borrowed 25% of £100,000 interest free, with the promise to repay 75% of appreciation, would now owe the bank £136,688 on top of the £25,000 they initially borrowed.

The group has been calling for compensation for the thousands of people who took out the loans and recent changes in the law pose the possibility of a group action.

UK Courts now have more freedom to rule on whether the relationship between a creditor and a debtor is “unfair” to the debtor, plus wider powers to vary the terms of the loan agreement.

Around 15,000 people are estimated to have taken out a SAM between 1996 and 1998 and law firm RWP has been instructed to bring a group action.

Barclays was the only other High Street bank to sell SAMS during the 1990s.

 

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Related stories to: New SAMS compensation challenge to HBOS and Barclays

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