Homeowners to sue HBoS and Barclays

Published on Tuesday 7 October 2008 10:01

Hundreds of homeowners are set to sue HBoS and Barclays over their "unfair" mortgages in a move which could eventually cost the banks hundreds of millions of pounds.

A recent change in the law has opened the door for potentially thousands of homeowners to claim damages from the banks over their Shared Appreciation Mortgages.

These mortgages were sold in large quantities throughout the UK in 1997 and 1998, and the loans were made on a zero interest basis or on a fixed interest basis, with the overwhelming majority being zero interest.

In the zero interest cases, when the homeowner comes to sell today, the banks typically receive up to 75 per cent of the appreciation in value of the home over the last 10 years, as well as repayment of the original loan in full, in exchange for having lent only up to 25 per cent of the value of the home 10 years ago.

The result is that more than years later thousands of homeowners are currently trapped in homes which when sold will not realise sufficient value for them to purchase a suitable replacement home.

The problem is so severe that Barclays has introduced a "Shared Appreciation Mortgage Hardship Scheme", but lawyers are warning this is inadequate because it does not provide compensation or change the terms of the original mortgage.

Hundreds of homeowners are now taking advantage of recent changes in the Consumer Credit Act 1974 to sue HBoS and Barclays in a Group Action.

The Group Action is being conducted by Hilary Messer of Reading-based RWP Solicitors. Ms Messer, head of litigation at RWP, who has acted for victimsof the Paddington rail crash, said: "The previous provisions in the Consumer Credit Act 1974 applied in relation to "extortionate credit bargains".

They were seldom invoked and rarely successfully because the courts applied the provisions in a restrictive manner. The new provisions which have been substituted and now have retrospective effect operate on the basis of a lower and more flexible threshold. If the court determines that the relationship between the creditor and the debtor is "unfair" to the debtor, it has wide powers to vary the terms of the loan agreement.

"Leading counsel has advised that there are strong grounds for contending that the relationship between the bank and the holder of the SAM was "unfair" for the purposes of these new provisions. He has also advised that certain of the terms of the loan agreements were in themselves "unfair" and that the terms of the brochures issued by the banks were "misleading" in a number of respects."

Ms Messer said the court will include a reduction in the percentage of the appreciation payable to the Bank, or alternatively the introduction of a cap or limitation on the amount payable to the Bank as the Bank's share of the appreciation.