Shared Appreciation Mortgages stopped being sold over two decades ago, but some families are only now discovering the often devastating financial impact of these products.

Around 15,000 Shared Appreciation Mortgages (SAMs) were sold in the late 1990s by two banks: a subsidiary of the Bank of Scotland, now part of the Lloyds Banking Group, and Barclays. They allowed homeowners to borrow a lump sum in return for agreeing to hand over a hefty percentage of any increase in the value of their property, when the property was sold or they died. 

Given that many areas of the UK have seen sharp increases in property values in recent years, some families have found themselves having to hand over hundreds of thousands of pounds to the banks involved, even though the original amounts borrowed were usually only a fraction of these sums.

Here, we explain exactly how SAMs work, and whether there is anything you can do if you or a family member took one out.

How do Shared Appreciation Mortgages work?

A Shared Appreciation Mortgage allowed homeowners to borrow a lump sum either interest-free or at a very low interest rate, in return for the lender sharing in any appreciation of their property value. Only homeowners aged 60 or above were eligible for this type of deal. 

Homeowners typically borrowed up to 25% of their property value, whilst agreeing to hand over 75% of any future growth in its value at the point at which the property was sold, or they died. At the time these products were offered in the 1990s, house prices had barely moved for years. However, since then, property prices in many areas of the country have rocketed, leaving large numbers of homeowners owing vast sums of money to their lenders.

For example, imagine that in 1998 your property was valued at £150,000, and you borrowed a lump sum of £37,500 via a SAM, perhaps to make home improvements, buy a car, or help your family financially. Fast forward 25 years, and let’s say your property has increased in value to £500,000, but you want to sell your home to move elsewhere. When your property is sold, you’d owe the lender an eye-watering total of £300,000, which is 75% of the £350,000 growth in the property value (£262,500), plus the original amount borrowed (£37,500).

It’s hardly surprising then that homeowners who took out these mortgages often find themselves unable to move because, if they sold, they’d be left with such a small amount that they wouldn’t be able to afford another property.

What help is there for Shared Appreciation Mortgage customers?

The biggest problem for customers with Shared Appreciation Mortgages is that this type of mortgage was sold before mortgage regulation was introduced, meaning they have little recourse if they complain.

Those who took out these products were advised by banks to seek professional financial advice before proceeding and needed to instruct a solicitor to explain the legal charge and mortgage conditions. Banks argue that this was done to ensure that customers were fully aware of the basis on which their borrowing was being arranged. Unless you are able to prove that your SAM was mis-sold to you by a financial advisor, any case you bring to the Financial Ombudsman is unlikely to be upheld.

However, the law firm Teacher Stern is currently representing 160 Shared Appreciation Mortgage claimants against the Bank of Scotland with a trial due to take place in early 2024, and says it is also assisting individual Barclays SAM holders and their families.

If you or a loved one has a Shared Appreciation Mortgage, it is well worth following the progress of this trial. You may also want to seek legal advice on the options available to you based on your particular circumstances, with some law firms suggesting that customers may be able to bring a claim challenging the enforceability of their SAMs.

If you are a Barclays SAM customer, you might be eligible to apply for help under the Barclays Shared Appreciation Mortgage Hardship scheme, which will provide you with an interest-free loan if you need to adapt your current home, or move to a new one due to substantial financial hardship, caused by factors such as illness, disability or a change of financial circumstances. To apply for the Hardship scheme, telephone Barclays on 0800 023 2981.

How is a Shared Appreciation Mortgage different from a lifetime mortgage?

Whilst both Shared Appreciation Mortgages and lifetime mortgages are a form of equity release scheme, the big difference between these two types of product is that with a lifetime mortgage, rather than agreeing to hand over a percentage of any increase in the value of your property, you’re charged a fixed interest rate instead. 

When you die or move into long-term care, your lifetime mortgage provider will normally expect your home to be sold and any proceeds from the sale will be used to pay off the loan and any interest that has accumulated. Anything left after the loan has been repaid will still belong to you or your estate, and if your beneficiaries can pay off the mortgage without having to sell the property they can usually do so.

Whereas a Shared Appreciation Mortgage can’t be paid back until the property is sold or you die, as of March 30, 2022 lifetime mortgage holders have had the right to make penalty-free repayments whenever they want, subject to lender criteria. Find out more in our guide Can I repay equity release or a RIO mortgage early?

If you want to get a sense of how much a lifetime mortgage might cost over 10, 20 or even 30 years, this lifetime mortgage calculator can give you an estimate. Fill in a few details and it will allow you to compare the costs of a lifetime mortgage where you are making monthly interest repayments vs instead choosing to roll up the interest without making any monthly repayments.

It’s worth noting too that the Financial Conduct Authority now regulates all equity release products including lifetime mortgages, so all advisors, brokers and lenders must be authorised by the FCA to carry out their business. The FCA also has strict codes of conduct and rules that equity release providers must adhere to. 

As well as the FCA, there is also the Equity Release Council, the trade body for the equity release sector, that provides additional protection. For example, all equity release products sold by members of the Equity Release Council must carry a ‘no negative equity’ guarantee, which means that even if property prices plummet after taking out an equity release plan, you’ll never owe more than the property value.

If you’re considering a lifetime mortgage, it’s a requirement from the FCA that you speak to a qualified financial advisor to help ensure that this type of scheme is suitable for you and you are aware of the risks involved. 

A good financial advisor will understand your circumstances and help recommend a suitable product from a member of the Equity Release Council (ERC).

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