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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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.