A major bank in the UK has reached a settlement to resolve a lawsuit regarding “unfair” mortgages, providing potential relief for numerous individuals facing large amounts of debt.
Before a six-week trial was set to begin, Bank of Scotland, which is a part of Lloyds Banking Group, and a law firm representing 160 current and former customers came to an agreement outside of court. This means that the bank will not have to face a public questioning.
The situation pertains to a financial product offered by Bank of Scotland known as the shared appreciation mortgage (Sam). This product has been criticized for causing significant harm to individuals, as they are left owing up to 10 or 12 times the amount they initially borrowed.
The law firm Teacher Stern, which initiated the legal proceedings, argued that Sams were “completely unjust” products that have resulted in homeowners being unable to sell their homes.
The resolution is shrouded in confidentiality, as both the bank and the law firm have stated that they have reached a commercial settlement without admitting any fault.
No information was revealed regarding the amount of money that has been exchanged, although some of the impacted borrowers are burdened with debts totaling hundreds of thousands of pounds – and a few even owe more than £1 million.
In order to participate in a claim like this, individuals may be required to pay a fee of approximately £10,000. This implies that the borrowers involved would not have given up their right to a court hearing without receiving a fair compensation.
The individuals who were eagerly anticipating the court trial – scheduled to commence on January 31st – included Gary Cooper, whose case was previously highlighted in Guardian Money before Christmas.
His parents took out a £42,500 Sam loan that has ballooned into a debt currently estimated at more than £500,000. The amount owed is so large because the deal they signed entitled the lender to 75% of any house price rise over the life of the loan.
Between late 1996 and early 1998, Bank of Scotland and Barclays sold numerous mortgages under the name “Sam”. It is estimated that over 2,000 individuals are still in possession of these mortgages.
Borrowers were usually permitted to take out loans of up to 25% of the property’s worth, with no required payments until the loan’s duration ended.
As part of the agreement, borrowers were obligated to repay the initial loan amount plus a portion of any appreciation in their home’s value upon mortgage repayment or sale of the property after their passing.
Typically, this agreement operated on a ratio of three-to-one. Therefore, if an individual borrowed 25% of the total value, they were expected to surrender 75% of the potential increase in value.
Cooper, who is not among the 160 claimants, is optimistic that the settlement could potentially pave the way for progress and assistance for others.
A statement released by both Bank of Scotland and Teacher Stern stated that the details of the settlement agreement will remain confidential. Furthermore, there will be no alterations made to the mortgages or their associated terms and conditions.
The bank had previously suggested that borrowers seek financial guidance to ensure they comprehended the product and that it met their requirements. Additionally, the bank stated that all borrowers were instructed by their individual solicitors.