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Hundreds sue banks over mortgages

Tuesday October 6th 2009

Three hundred homeowners unwittingly forced to pay an equivalent interest rate of up to 40% have won the right to sue Barclays and Bank of Scotland.

The claimed iniquities of shared appreciation mortgages (Sams) have prompted the High Court to grant a group litigation order, enabling them to take legal action.

The mortgages, which have now been discontinued, allowed 0% loans with the borrower paying a charge of 75% of the increased value of the property on repayment, or when selling and trading up.

Thus the lender's share of the home is often four and a half times the amount originally borrowed, the equivalent of an interest rate of between 35% to 40%.

For example, if a house increased in value by £200,000 between 1997 and 2007, someone who had originally borrowed £25,000 would have to repay a total of £175,000.

Which means that many people find themselves trapped, unable to raise enough money to buy a new property after paying the banks their share of the appreciation.

It is thought that 12,000 Sams were sold in the UK between 1997 and 1998, when they were withdrawn from the market, with about 7,000 still in force.

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