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Lloyds Banking Group is being sued in the High Court by 150 homeowners who claim they lost thousands of pounds after selling home-appraisal mortgages.
The case was brought against Bank of Scotland, now owned by Lloyds, and focuses on shared appreciation mortgages, which allowed borrowers to take out a loan on their home provided the bank received a percentage of the equity growth when the property became sold.
However, since the mortgages were agreed in the late 1990s, house prices have more than quadrupled, leaving some homeowners to owe the bank hundreds of thousands more than their original loan. According to land register data, the average price of a UK property rose from £ 56,630 in April 1996 to £ 265,668 in June 2021.
Teacher Stern, the law firm that works for the homeowners, said the claims could be worth up to £ 50 million. In his case it is alleged that the mortgages are “fundamentally unsuitable” for consumers and “inherently unfair” within the meaning of the 1974 Consumer Credit Act. The Bank of Scotland, which is defending the lawsuit, rejects the allegations in its entirety.
The case is due to go to the High Court in October and a trial date has not yet been set. Barclays, also on trial over similar products, reached an agreement with 37 borrowers in June.
Shared appreciation mortgages were a precursor to stock-sharing products and were sold to older consumers to help fund their retirement.
Some mortgage loans have allowed homeowners to borrow 25 percent of the value of their homes – provided they paid back up to 75 percent of the property’s appreciation. Teacher Stern said that in one case in 1998 a plaintiff took out a £ 187,000 loan for his London home of £ 750,000 but now owes the bank £ 1.6m as the property’s value rose to £ 2.8m.
The law firm estimates that between 1996 and 1998 an estimated 12,000 to 15,000 shared appreciation mortgages were sold by Barclays and the Bank of Scotland.
Homeowners claim they were “largely financially illiterate” and claim the bank has “almost guaranteed high returns”.
In court documents, plaintiffs argue that the equity raised by the bank is “grossly excessive” because it is not capped and say the products “trapped borrowers in their homes until they died” as it is difficult for them now is to sell them on since they have little equity in their homes. They want the high court to cancel the agreements or change the loan terms to a fairer interest rate.
In its defense document, the Bank of Scotland says the relationship between it and the plaintiffs has been fair and that all borrowers have received independent legal advice. It is said that their complaints are “retrospective” because the bank has taken “risks” of a possible devaluation of the house price.
The bank claims that the homeowners “gained significant benefits” from taking out the loans that are “not difficult to understand” and says the bank’s documentation “explained the terms fairly and clearly”. Lloyds declined to comment.