Lloyds Bank sued over shared appreciation mortgages

House of Money: shared ownership property

Lloyds Banking Group is being taken to the High Court by 150 home owners later this year. The properties were all mortgaged under the bank’s ‘shared appreciation mortgage’ deal, which allowed borrowers to tie in their mortgage to the value of the property.

Under the terms of the shared appreciation mortgage, up to 25% of the value of the home would be released, often interest free, in return for the full repayment of the loan plus 75% of the increased value of the home, once the property was sold.

Shared appreciation mortgages pre-date equity release schemes and were sold as an option to fund retirement. The high street banks offering this type of loan included Barclays and the Bank of Scotland. The Bank of Scotland merged with Lloyds in 2008, meaning Lloyds now manages its mortgages.

Law firm Teacher Stern is leading the action on behalf of the home owners. The action relates to mortgages taken out in the late 1990s, and the firm estimates the combined value of the claims to be in the region of £50 million.

Claimants say they have been detrimentally affected by the unforeseen and rapid rise in house prices since the loans were originally agreed. In some cases, the increase in property values has resulted in a 500% rise in the amount originally borrowed.

One claimant said that a £187,000 shared appreciation mortgage taken out in 1998 has left them owing £1.6 million to the bank. The London flat on which the loan was held was worth £750,000 when it was purchased, but the property is now valued at £2.8 million.

The home owners accuse Lloyds of trapping them in their homes until death, interested only in seeking high profits from people who were ‘for the most part financially unsophisticated’. The law firm alleges that shared appreciation mortgages were not suitable for consumers and ‘inherently unfair’ under the terms of the Consumer Credit Act 1974.

In June, Teacher Stern agreed an out of court settlement with 37 of Barclays’ borrowers over the same type of mortgage deal taken out around the same time.

The Bank of Scotland has denied the allegations and is defending the claim against it, saying that, when borrowers took out their mortgages, they had received independent legal advice. The bank claims that claimants’ complaints were based on the benefit of hindsight and that the properties could instead have depreciated in value.

It is thought that between 12,000 and 15,000 shared appreciation mortgage products were sold between 1996 and 1998.

The case will be heard at the High Court at some point in October 2021.