From The Daily Mail:
As Bob Diamond climbs elegantly into his mink-lined coffin, I wonder if he might spare a thought for Edna Robson, who took out a £15,000 loan with Barclays Bank 14 years ago, and now discovers she owes a staggering and disgraceful £97,000.
She and her husband John had lived in their former council house for 40 years. They wanted a little money to take holidays together, and so went to Barclays for a loan — called a Shared Appreciation Mortgage (SAM). It was an insidious financial product that was on sale at the bank between 1996 and 1998, and was designed to allow home-owners to free up money from the equity in their properties.
The loan is paid back when the property is sold, and at that point you pay back not only the loan but also a proportion of the amount your home has risen in value. So if your house price rose sharply, the bank would demand a much larger sum in return than you borrowed.
At the time Edna took out the loan — when her house was valued at £65,000 — it was predicted prices would rise by five per cent a year. In fact it was far more — leaving Edna, and others like her, facing a massive bill when the time came to sell their houses.
The reason Barclays are claiming the money back now is that Edna, 88, is suffering from Alzheimer’s and needs to go into a home to be looked after. One of her children, Barry Taylor, of Chedgrave, Norfolk, contacted me to say he has been forced by Essex County Council to sell his mother’s three-bedroom semi — for £183,000 — to pay for her care. The council insists on the sale because Edna has more than £23,000 in assets, and thus those assests — as the law demands — must go towards her care.
As Barry told me: ‘No wonder Bob Diamond and Co earn such huge bonuses if they can exploit people like my mother with such schemes.’ Once Edna’s care bills were taken into account, the rest of the sale value of her home would have been the basis of her legacy to Barry and his two siblings. Yet around half that money went straight to the bank.
Hang about here.
Edna bought her council house at a massive discount, and probably paid less in mortgage repayments than the council rent would have been, so effectively it's cost her nothing. So that entire £183,000 is pure unearned windfall gain, or free gift from the taxpayer or the next generation (some poor bugger now has to pay off a £183,000 mortgage instead of getting an affordable council house).
Yes, the bigger sharks Barclays have collected more than half that windfall gain, but that was the deal; twenty years ago, how many people knew that house prices would treble, so at the time she signed up, it was probably a fair bargain.
And if her house were still valued at £65,000, so that Barclays are only repaid £15,000, would that somehow make it fairer? That's how spiteful the Homeys are, if they can't have it, then nobody else can have it either.
Spotter's badge: Robin Smith.
Chuckle of the day
56 minutes ago
15 comments:
'Once Edna’s care bills were taken into account, the rest of the sale value of her home would have been the basis of her legacy to Barry and his two siblings.'
Ha!
Ha! Ha!
Ha ha ha ha ha!
I've been handling the affairs of a relative in almost identical circumstances - apart from the loan.
The care home fees of £1,000 per week - plus extra costs associated with hospital treatment - have so far swallowed up well over £100K and look likely to consume virtually all the proceeds of the sale of the house (even when you're down to £23K, they still expect you to pay a proportion of the fees).
Legacy? Don't make me laugh!
What they don't mention is that SAMs are written at a below-market interest rate so she only paid a proportion of the interest due, which is why Barclays take part of the increased value. They share risk on the equity proportion.
A somewhat related product is a Shared Equity scheme. Could it be successive Governments (inc the ConDems and the Scottish Monkey House have promoted, and funded by misappropriation of funds, shared equity schemes to "help" "hard pressed" first time buyers to get on the property treadmill, oh, sorry, ladder? Surely not........
I don't notice many people rushing to describe Shared Equity mortgages as "insidious", but whereas as Edna's isn't, SE are.
Her arrangement stands as an object lesson as to why shared equity schemes are insidious (they probably mean iniquitous, anyway). Buyers under Shared Equity schemes are trapped if their circumstances change, trapped if house prices fall, and trapped if house prices rise. But lemming-like, kids rush to try to "take advantage" of (meaning: "have advantage taken of them by") these schemes.
I made a small but fancy spreadsheet (lots of primary colours.....) designed to make the risks plain to even the dimmest wannabe equity sharer, but it makes little difference. Their parents are there in the background (having eaten all the pies) and urging their progeny into a lifetime of financial serfdom for a fecking rabbit hutch of a "starter home" while the builder goers off to order another Range Rover.
Mark: I wonder what eaxctly was said and shown to the client by Barclays, and what their backroom boys had actually calculated as to future house price increases. Another quiet migging, methinks.
Macheath: the alternative is the cheapo care home, isn't it, and all credit to you for not going for it.
"Mugging", of course. Fingers!
In what dictionary can I find that definition of "product"?
You could try this... Barclays website, or our friendly loons at the FSA.
Or you could go and pass the FSA exams :-)
Sackerson - you may have hit on something here; 'migging' sounds just right to describe when they take money off you but so quietly you don't notice.
OED please take note...
Actually, I have found myself wondering in darker moments whether relatives with fewer scruples (or in desperate financial straits themselves) might find it in their own interests to choose a home with significantly lower standards of care - and consequently reduced life expectancy.
It was a shock to discover that the choice was placed entirely in my hands, despite being named as the main beneficiary in case of my relative's untimely demise.
"Her arrangement stands as an object lesson as to why shared equity schemes are insidious (they probably mean iniquitous, anyway). "
They are neither iniquitous nor complicated, AFAICS. All that is happening is that you only buy (or sell, as in Edna's case) part of your house. You now have a property in shared ownership, just like if you bought the property with your spouse, your sibling, or a parent. They own, say, half the house, so if the house triples in value, their share triples in value. After that, if you want to buy out your partner (bank, divorced spouse, hated sibling or parent) will have naturally have to buy three times the money that they paid for that share in the first place. I don't suppose Barry would be whining to the newspaper if the house had gone down in value. Why didn't he have a go at his mum when she sold half his inheritance in the first place?
I suppose this is exactly what happens on Dragon's Den. They lend you some money, and in return you give them some equity (you don't sell them the equity, as it implies in the patter).
Sorry to double-post, but this could have been a re-write. "When she lost her job, she was forced to sell her house, through an insidious contract that meant the new owner would receive 100% of the subsequent increases in price".
To be fair to Edna, the bank may not have explained fully at the time that she wasn't getting a loan, she was selling a share in her house. I certainly wouldn't put is past them not to be absolutely clear on this point. Calling it a mortgage is pretty misleading, as well.
Isn't the risk of changed circumstances a very good reason NOT to base an LVT on selling price. Denmark and a few others seem to have been bitten by that one... even when the LVT scheme was once working very well.
Oh good, it looks like most comments vaguely agree. I was expecting a hail of Homey abuse over this one.
B, yes, Barclays probably did lie to her, that's what banks do.
RS, you can base LVT on anything you like, as long as the actual tax payable in £'s is not more than the actual site-only rental value, it doesn't matter. So if the site-only rental value is £10,000 and the LVT is £8,000, then it works fine.
Whether that £8,000 LVT is calculated as x% of the site-only rental value or y% of the selling price at a certain point in time (possibly minus a fixed figure for bricks and mortar value) or the height of the chimney stack simply does not matter.
"B, yes, Barclays probably did lie to her, that's what banks do. "
Indeed; I opened a business account a few years ago and had already caught the bank out in a lie before the account was even operational.
@Bayard: They are neither iniquitous nor complicated, AFAICS. All that is happening is that you only buy (or sell, as in Edna's case) part of your house.
I know that, thanks, and how it works; Edna's arrangement is entirely fair and reasonable though like you I doubt she was given (or was interested in) a detailed explanation at the time.
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