Barclays offers help for customers with Sams

In the 1990s shared appreciation mortgages (Sams) were available to elderly homeowners to enable them to borrow interest-free money against their properties. It was a good thing that there was no interest, but instead the deals entitled banks to keep three-quarters of any increase in the value of the property.

Of course, in that time property prices have increased so much that when time came for the property to be sold, the bank owned so much of the property that the owners did not have enough from what was left over to buy a new property. Most properties have more than doubled in value. Thus the homeowners’ original debts have trebled or more and the banks now own a growing portion of the total property. The result was that some Sam borrowers could not move, yet could no longer live in their homes, perhaps due to disability, or could no longer afford to maintain them, were trapped in their own homes.

One example is D-Day veteran Frank Cooksey, who turns 86 this year. All he borrowed in 1997 was £15,000 with a Bank of Scotland Sam deal. His wife died in 2003 and he contacted the bank to see if he could pay off the loan. But it had grown to £65,000. In 2007, the rise in value of Frank’s house in Barmby Moor, North Yorkshire, is such that he would need more than £100,000 to pay off his Sam, leaving him with nowhere near enough to buy another home. Frank is pleased for Barclays’ Sam borrowers, but for him and the rest of Bank of Scotland’s, the fight goes on.

There were only two providers of Sams, and these were Bank of Scotland (now part of HBOS) and Barclays, in 1997 and 1998. Barclays has decided to offer assistance to the thousands of elderly customers who have suffered difficulties as a result of Sams. They say they will replace 2,500 mortgages with a loan that can be paid off later of on the death of the customer.

The announcement of Barclays’ Sam Hardship Scheme acknowledged that some customers are in a position of hardship as a result of Sams, and that they’d like to help them move to a more appropriate house.

Under the scheme anyone who wants to move home will be given the option of borrowing money needed to pay off their debt, free of interest and free of repayments. Such a loan would enable them to settle up their Sam, and give them the chance to sell their property and use the money from the sale to buy a home more suited to their current needs. Nevertheless, the new debt would be attached to the new property and would still have to be repaid.

There have been a number of campaigns from lobbying groups about Sams, including Struggle Against Financial Exploitation, who said it would enable people to now move house if they needed to, and they welcomed the news. However, they maintained that the way the debts have mushroomed is unfair. The money will still have to be paid back by homeowners, or their beneficiaries.

For Bank of Scotland customers who took out Sams, numbering around 8,000, there is currently no change. Banks representatives have plans to discuss the situation with MPs and campaigners. 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.’

Barclays’s change of heart on the issue has come after years of campaigning by groups on behalf of the thousands of elderly Sams customers sho signed up to the much-criticised Sams.

The new scheme may be a lifeline for some, but it does carry some risks. Equity release expert Dean Mirfin of adviser Key Retirement Solutions in Preston, Lancashire says that the biggest of these, is that when the Sam is paid off, the debt is crystallised. Mirfin says that this could be dangerous if property prices were to fall. With the Sam in force, the amount owed can never be more than the value of the property. But, if the Sam is paid off and converted into a loan, as under the new scheme, then that will no longer be the case. There is, therefore, a risk of negative equity.

Apart from its offer of a loan, the bank said that it would be prepared to make grants or gifts of small sums to needy borrowers who wish to stay in their homes but are in need of some modifications to be carried out.

Sams borrowers will only be contacted by Barclays if they have previously told the bank they are in difficulties. Others can, of course, request more information.