UK mortgages: ‘How did a £42,500 loan turn into a £477,000 debt?’

theguardian.com:

Britain’s biggest mortgage lender is facing questions about how it allowed a £42,500 loan taken out by an older couple to turn into a debt estimated at £477,000.

Gary Cooper discovered that in 1997 his parents took out a type of mortgage that entitled the lender to 75% of any house price rises over the life of the loan.

However, the couple were not preyed on by loan sharks – the lender is an offshoot of Bank of Scotland, part of Lloyds Banking Group. Earlier this month the Lloyds group reported that its profits had leapt by 46% to hit £2.3bn for the first three months of the year.

Cooper’s parents died in 2021, and their house was last year valued at £750,000, so – as things stand – he and his sister will have to hand over most of that to the bank. He says he feels certain his late parents did not realise that that £42,500 loan could spiral to close to £500,000 and “cost their kids their inheritance”.

However, the bank says it recommended at the time that customers took independent financial advice to ensure they understood the product and that it was right for them, and adds that in this case, solicitors were instructed by the borrowers.

The Coopers are among hundreds – probably thousands – of families whose lives have been blighted by shared appreciation mortgages (Sams). This was a type of home loan that was only on sale for a brief period, between 1996 and 1998, and only available from two banks, Bank of Scotland and Barclays.

These loans were ostensibly aimed at helping “asset-rich, cash-poor” older people release some of the value locked up in their homes. They typically allowed people to borrow up to 25% of the property’s value, and usually there were no repayments to make during the lifetime of the loan.

In return,