Shared Appreciation Mortgages

In a nutshell, the shared appreciation mortgage allowed you to borrow 25 per cent of the value of your property at zero interest, provided you agreed to pay the bank, upon your death or sale of the house, 75 per cent of the appreciation in the price

The punters were offered the benefit of a zero- interest-rate mortgage; they took a risk; they got spectacularly stung

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If you think the banks are bad, take a look at Labour

It takes guts to bring your wife to meet a stranger and then to confess, in front of her, that you have been a complete idiot. So when a distinguished and snowy-haired gentleman appeared in my office, and spread the shocking details of his mortgage arrangements before me, I was immediately sympathetic. “The awful truth,” said the honest fellow, “is that I am not the sharpest tool in the box.”

I beamed at him, and extra specially hard at his wife, and yet as I looked at the papers, I could see that he was accurate in his self-assessment. He was, indeed, a bit of a chump.

We have all, in our time, been egregiously foolish with money. I will never forget the trance-like way in which I decided that I was going to buy a magic dancing doll from a Ghanaian street vendor in Paris; how I shelled out colossal quantities of wonga for this scrap of cardboard, in the conviction that if I placed it in front of the hi-fi it would dance around, just as he was making it dance in the Tuileries gardens.

I remember watching it sit there all floppy in front of the pulsing speakers at home, doing nothing except being a scrap of cardboard, and how long it took before it dawned on me that I was just a sucker, a gull, a dupe, so dur-brained that I had actually persuaded myself that a piece of paper could be made to dance by playing music at it.

The awful truth was that I really had no one to blame but myself (I think my wife had pointed out the idiocy of the investment), and the same, alas, was true of the man who had come to see me. He was one of those who had invested in a shared appreciation mortgage, a scheme which the banks briefly and tantalisingly placed on the market between 1996 and 1998, and then whisked away like street pedlars surprised by the police; but not before they had persuaded 15,000 people to fall for a beautiful sting, which has allowed them to fleece, and to keep fleecing, their mainly elderly prey like a vast flock of muddled old ewes.

In a nutshell, the shared appreciation mortgage allowed you to borrow 25 per cent of the value of your property at zero interest, provided you agreed to pay the bank, upon your death or sale of the house, 75 per cent of the appreciation in the price. Now you might think that the catch would be obvious to anyone with a vague knowledge of the English property market over the past 40 years.

We are, as a nation, addicted to house price inflation. We are demanding new houses so vociferously that even if Prescott carpet-bombs the countryside with five million new homes, I doubt (pace Kate Barker) that it will have much impact on the trend of the English housing market, which is and has been remorselessly upwards.

You might have thought that that point would have been obvious to this man when he signed up for such a deal. If England went through one of its traditional housing booms, he would find himself owing the bank a huge proportion of the value of the house, and since a rising tide lifts all boats, he would find it very difficult to sell that house and buy even a smaller house. He should have foreseen that he could find himself in the nightmarish position of watching his debt grow ever bigger with every rise in house prices; he should have spotted a bum deal or got the best iva company and made a agreement, you might say, and in a strict sense I suppose you are right.

In my free-market soul I can see that the banks have logic and the law on their side. The punters were offered the benefit of a zero- interest-rate mortgage; they took a risk; they got spectacularly stung. Whose fault was that? The punters’ fault; and yet somehow that won’t do.

These people were so foolish, so idiotic, that their plight has managed to uncover, in another part of my soul, a long-buried streak of paternalism. Is it really right that so many elderly people, with no very deep understanding of finance, should be so brutally shylocked by banks that make many billions of profits? Is it really right for us all to say, Oh well, caveat emptor, old chum, and move quietly on?

I certainly don’t want to enact any regulation; I don’t want to give the Financial Services Authority any new role. But wouldn’t it be nice if someone put moral pressure on these banks to help men such as an 85-year-old Normandy veteran from Yorkshire, who, together with his wife took out a £15,000 shared appreciation mortgage against the value of their home in 1997, when it was worth £63,000.

His wife is now dead, the house is far too big, his health bad, and he needs to sell; yet the house is now worth £180,000 and at least £100,000 must go to the bank, leaving him too little to buy anything else and the prospect of going into residential care. Who is in a position to put pressure on his bank, which recently announced billions of profits? Can the Government? Of course not, because the Labour Government is even guiltier than the banks themselves.

Never mind the victims of the shared appreciation mortgages; what about the pensioners who were continually told by Labour that their final salary schemes were being protected while Gordon Brown was engaged in such crippling larceny of the funds in question that the Ombudsman yesterday pronounced the Government guilty of “maladministration”.

As my colleague Philip Hammond has pointed out, it was Labour that twice reduced the minimum funding requirement for these schemes – and yet when Tony Blair is told by a judge that his government must do something to help those who have been cheated, he figuratively sticks up two fingers.

How, in other words, can we expect the banks to show clemency to the 15,000 they have cynically exploited, when the very Government – the Government to which all must look for guidance and example – has cheated 85,000 pensioners, explicitly, blatantly, and with complete impunity? The fish rots from the head.

27 thoughts on “Shared Appreciation Mortgages”

  1. Hear hear Borrie.

    “I certainly don’t want to enact any regulation; I don’t want to give the Financial Services Authority any new role.”

    Oh come on! Stop the rot!!

  2. Rapacious banks? Try this. My son, fresh out of university and in a low-paid job, had a £1,500 graduate overdraft limit. He hovered around the limit for about a year, doing his best to stay in the theoretical black.

    Every time it went over – even by £1 – he was clobbered with charges of Dick Turpin proportions. Penalty fees, interest, bounced cheque charges, “writing a letter”… the sums were breathtaking, sometimes approaching £100.

    Here’s the puzzling bit. Although the bank was happy to block payments from his account while overdrawn – and charge him for doing so on every item – the one charge they allowed through was their own. So even if he managed to get it below the limit, their own charges from last month would bring it over, triggering another full round of penalties.

    In all, it cost him about £1,400 to borrow what was no more than £150 above the limit at any one time.

    Anyone else would have been banged up for usury.

  3. Sorry, if this is totally off-topic, but I’ve just been looking at the picture of Boris at the top of the page, and I’m increasingly bothered that he seems to have a left shoulder enormously larger than his right shoulder. Does Boris inordinately exercise his left arm in some way?

    Either way, both shoulders seem far larger than those of the the two puny (punic?) Romans behind him. Who they anyway?

    Melissa, darling, please advise.

  4. Hi Boris
    Just a minor point that these top flight financiers on the benches opposite might like to consider, and Tessa may be able to point them in the direction of a good accountant,
    if you borrow money surely you have to repay the intrest from some other form of income.If said income is another loan its pyramid “selling” like a third world despot. Or alternatively you turn up and ask ever so nicely Del Gordy next door for help and advice ,or, god forbid the treasurer. Could this be where all the billions have gone or are going over the next few years.
    Remember when Tone the Crone came into office their financial policies mirrored yourss until the stealth taxes began to cut in, well the plan now is to leave eventually in such a state that it wil look awful on the next government trying to correct the legacy.

  5. Well thanks for the sympathy, guys! (you can guess who had to bail the boy out).

    And herein lies the trouble. Anyone reading my last post (and I can’t blame you if you didn’t) is probably thinking “His fault – he should have read the small print”.

    So should Boris’s constituent, then.

  6. PaulD, reading the small print doesn’t always help you. For one thing, interpreting the small print can be difficult in a changing market like the housing bubble. For another, banks are allowed to change the small print without warning, and there is much that isn’t covered by small print, but is covered by banking practices known only to bankers. It’s not illegal, but it’s not written in stone, it’s just the bank’s policy.

    I, myself was caught in this trap. There was a dispute with one of my credit cards; okay, fine, I was dealing with the credit card company to the best of my ability. What I didn’t realize was that, since the global parent of the credit card company and the global parent of my bank were the same, the credit card company could (and did) freeze my bank accounts until I had made a rather massive credit card payment. Surprise! And not illegal, although it would be possible for me to sue over points of contract law. But then, if I had enough money to sue an international bank, would I not have made a massive credit card payment in the first place?

  7. When I say they’re allowed to change the small print without warning, I mean without warning, not without notification. Once they’ve made their changes, they always send you a note. Isn’t that swell of them?

  8. Thank you, Boris.

    ‘Somehow it won’t do’.

    And yet we continue to construct our society on a model that praises and rewards businesses and business people for their gargantuan success, no matter what route they took to achieve it.

    ‘Moral pressure’.

    You said it. There is good, honest business; and there is bad business, which cares not a jot how and whence the money comes.

    You may be right. Regulation will just be got round, like it always is. What we need to do is stop treating financiers like angels of the free market. What they do is not ‘financial service’; it is theft, to some degree or another, and the people we elect to govern should somehow find the courage to say so.

    Often. And loud.

  9. PaulD…

    You have all my sympathy. Or your son has.

    Remind me to tell you all how the credit referencing agencies work these days.

    Oh alright. I’ll give you a precis now.

    When you get in the red, the charges get you further in the red.

    When you look for a way out, you’re targeted with opportunities to get further in the red. And I mean targeted – these banks deliberately send junk mail to the people who least need that kind of help.

    When your debts get out of control (and it’s not always your fault, see above), you find it impossible to get the financial help that might get them back under control.

    Why? Because everything you do these days is credit scored.

    And I mean everything. Try opening a bank account with any kind of black mark on your credit record. I don’t mean try borrowing money – I mean try opening an ordinary, cheque-bookless bank account, of the sort that can’t run into overdraft.

  10. What about these new 100% mortgages for students? They sure sounded like a great idea: they’d make sure the students cared about their housing and looked after it, they’d start kids out as homeowners with a stake in the community, people would get a credit history at minimal cost, they would supply an ongoing source of student housing, etc etc.


    Turns out these mortgages are not to be secured in the ordinary way, ie by pledging the house itself. They are to be secured by that house and the house of the student’s parents.

    So the bank is actually offering a basic mortgage, and in return the student has pledged two houses. Not only that, but students whose parents are not property owners have no chance whatsoever at this mortgage, once again keeping the landowning class hegemony secure.

    Sorry, the socialist in me comes out when I run across crap like this.

  11. Raincoaster…

    I think you’re being a bit mild, letting the Socialist in you come out. This kind of crap brings out the full-on petrol-bombing anarchist in me.

    Meanwhile, I just discovered my student daughter is unable to rent a room in a shared house until all the tenants have provided the name of a guarantor. And both the student and the guarantor have to undergo credit-scoring.

    What happens when you apply for credit after the junk mail drops on your doormat, and you get turned down?

    It leaves a ‘footprint’ on the record, is what. And every negative footprint makes it more difficult to apply for credit (or even open a bank account) the next time you try.

    Let’s be clear here: this credit scoring isn’t just for people who abscond with the company pension fund. You can get a default listed if you’re over three months late with a ten quid catalogue payment. Even if you had no idea you owed it, the default gets listed on the record.

    Then whose responsiblity is it to remove the default? Yours of course.

    Sometimes you don’t find this kind of shit out till you apply for a mortgage or a loan. It happened to me several years ago, and it turned out the reason Barclays refused me was a £25 payment to American Express that I’d owed for six months, but had never received any statements informing me about the debt.

    I got the default removed from the record. Eventually. After half a dozen letters, and a dozen letters to both Barclays and AMEX. Did they apologise as they put the record straight? Did they heck as like.

    I’m literate. I can fight my corner in a letter or a phone call. Christ alone knows what the banks’ reaction is to people who aren’t good at expressing themselves, sometimes slip behind in their catalogue payments because they’re worked off their feet feeding and clothing the kids, or simply don’t have the faintest idea how credit scoring works.

    Try asking how it works. See if you get any help from anybody. Try exploring the websites of Experian and Equifax – you’ve never come across so much webspun bull in your life. The only ‘customers’ they’re interested in are the financial institutions who pay them fat fees for the right to exploit their (often-flawed) information.

    Now think ahead, and consider what might happen when identity cards arrive. You think the banks are going to be interested in issuing credit and debit cards when there’s a nice neat new government ID card packed full of identifying information that would do just as well?

    Fast-forward a couple more years, and welcome to a world where the banks will be able to decide, by scanning your card as you walk through the door, whether you’re a ‘valued customer’ or not.

    Maybe I’m extrapolating too much here. I doubt it.

  12. Mark wrote: I think you’re being a bit mild, letting the Socialist in you come out. This kind of crap brings out the full-on petrol-bombing anarchist in me.

    Delicious! Boris, are you listening?

  13. Amen.

    Boris – if you are listening, ask around. You may find that once people get over their natural inbred reluctance to openly discuss personal finance, there’s more seething anger at the way the banks behave out there than on almost any other issue.

  14. Mark Gamon:
    I hear and agree to your point on the difficulty of opening a bank account with any form of black mark against you.

    There are half a million homeless people in the UK (I was one of them for a horrible period of time, and would still be if it wasn’t for Boris helping me up and out of it). Most of these people want to be back working, but are obstructed continually along the way…not least of which by being denied even the simplest of banking facilities. In fact, even benefits need paying into an account….

    The System does not work. But are we surprised when the current government keeps demonstrating that it is lying, corrupt, and self-serving – and no one seems willing to do anything about it.

    We elect representatives, yet they assume they are delegates. And we just sit back and put up with it. Maybe the petrol-bombing anarchist in ALL of us NEEDS to come out, just to remind Them exactly what Their responsibilities actually are.

    (This is not a promotion of terrorism, but a call to freedom fighters!)


  15. Psimon… an interesting story you have there. Sorry to hear about your homeless period. We’ve all been through black patches.

    Must admit, I hadn’t even considered how difficult this must be for the homeless. It’s bad enough for the indebted (no matter how slight a debt that might be).

    As I understand it, the law says that all banks MUST provide basic banking facilities. Trouble is, no-one seems to have told the banks about it. What’s worse, no-one seems INTERESTED in telling the banks about it.

    And why should they? After all, there’s no profit in homeless and indebted people. Let ’em rot, seems to be the attitude.

  16. Yes, we have the same problem in Canada. The banks aren’t interested, and they just keep putting up hoops for people to jump through; if people persevere, they eventually find out they don’t actually have to jump through the hoops, but people who are homeless have FAR too much on their plates to spend hours a day rustling up useless paperwork.

    The solution in Vancouver was to form a nonprofit to run its own bank. It worked really well, but of course it failed. Bankers wouldn’t work for it, so they really didn’t know what they were doing. The bankers advising them had a vested interest in this thing failing, so they didn’t lose control over the market for commerce itself. Really, I am already cynical, but those advisors are actively malevolent.

  17. Raincoaster…

    I note your choice of words. ‘Actively Malevolent’ seems about right to me too.

    You’re also right about the hoops. I suspect this is a byproduct of the IT revolution: because computers only understand ‘on’ and ‘off’, eventually the people using them start to think the same way. Most notoriously, those who use them for purely mathematical calculations. Like underwriters. Accounts departments. Debt collectors. The inland revenue. And whoever calculates risk inside a bank when the time comes to deal with a loan application.

    On/off, black/white, yes/no. That’s how decisions are made these days.

    I wonder how we’d have got on in 1940 if we’d carried out a risk assessment first?

  18. Oh, I think people used to just go off and starve; at least now they can email their MPs!

    Have you heard that the New York Library system has made it mandatory to have a library card to use their computers? Sounds perfectly reasonable, except that you need a HOME address, proven by receipts (ie shelters, etc do not qualify) to get a library card. Now the homeless cannot even email their representatives, never mind conduct a jobhunt or research shelter options.

    There are some very articulate people living without shelter at the moment. For an example, you may want to take a look through the archives of The Homeless Guy, who, although no longer homeless, spoke for many and continues to speak out against the vicious cycle of marginalization of the already disadvantaged. He wrote most of that in public libraries, and it’s a valuable resource.

  19. Here’s an idea.

    Sue the banks for your penalty charges. When they try to sting you for going a couple of quid over your limit, or paying your bill two days late, whack county court claim in for it. Many people think the contract terms they use are unfair.

    Okay, the small claims court can be a lottery but if everyone tried to claim they’d soon stop. They have to pay their solicitors £100 per hour preparation and attendance, they can’t usually claim it all back, even if they win. What do you think they will do when every Tom, Dick and Harry starts threatening to sue them?

    Maybe people should start sticking up for themselves a bit more and not relying on everyone else to do everything for them all the time; and then complaining when nothing happens. Another symptom of the nanny state methinks.

  20. Nice one Psimon, looks like sterling advice to me.

    It’s a shame government departments that give consumer advice don’t have the conviction to say this more proactively. What is it with this government and the banks? Anyone any ideas?

    There’s another web link worth reading if you’re interested. It’s a press release from the OFT about their investigations into penalty charges. There was a big Treasury Select Committee meeting (is meeting the right word?) about it where the banks basically refused to give them any details about the charges because it was ‘sensitive’. The problem with the OFT is that although they have good intentions, they come under the DTI, and like I say there seems to be something about this government and the banks.

    The link is

  21. Going back to the homeless for a moment: Today I was doing some research for work and I found out an interesting fact.

    The average life expectancy for a homeless person in London is…

    Can you guess?


  22. 42.

    Amazing, isn’t it.

    We live in such a civilised country.

    We spend billions killing innocent men, women and children in foreign countries – but we can’t find a few million to help our own.

    Such a lovely country i live in.

    Such a lovely race i belong to.

  23. Don’t be so down on yourselves. In the Vancouver neighborhood I live in, in 1996, the average age at death was 32.

    I’m 42. Boris is, I believe, 41. And according to the document I was reading, during the Black Plague, life expectancy in London was 46. Progress, my friends; the hamster on the wheel really thinks he’s going somewhere.

  24. I thought this debate was about the morale standards of banking in the UK and how it relates to the morale standards of government?

    You’ve all made the point that they both could treat the homeless better.

    Lets get back on topic, this is a good one!

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