Fair or unfair?

[TimberWolf]

Homeowners set to sue banks over low interest loans

For those that can't be arsed to click the link:

Thousands of holders of controversial shared appreciation mortgages (SAMs) have been told they can club together to take on the banks that sold them in court in a US-style class action.

Brief case for the plaintiff:

For example, a home-owner who borrowed £25,000 at a zero rate of interest on a house worth £100,000 then would have to pay back £175,000 on redemption if the home was worth £300,000 today. That is made up of the original £25,000 plus £150,000, 75 per cent of the £200,000 increase in value.

Brief case for the defence:

Bank of Scotland said: "We believe the terms of the mortgages were clear to customers when they took out their loan but we recognise that the arguments the SAMs borrowers wish to raise should be brought before a court as quickly and efficiently as possible.

[Moscow Mule]

If these were mis-sold (and they are very easy to mis-sell) then folks should win their case.

Why does the bank get 75% of the increase in value when they only put up 25% of the purchase price? Is it just an inequitable contract?

[Menelaus]

Inequitable seems to be the answer but I suspect that this'll be played out with BOS getting a bit more than the 25% back.

[TheFaQQer]

Why does the bank get 75% of the increase in value when they only put up 25% of the purchase price?

Because they took all the risk and provided the loan at 0% (presumably when 0% was a really low rate, rather than compared to current rates).

Same thing happens on Dragons Den all the time

[Moscow Mule]

Because they took all the risk and provided the loan at 0% (presumably when 0% was a really low rate, rather than compared to current rates).

Same thing happens on Dragons Den all the time

It's not really "all the risk" if the buyer is sticking up 75% purchase price/equity.

Not really. Dragons get their %age of profits depending on their slice - if they've got 25% of a business they get 25% of the profits, not 75%.

[Zippy]

I may be naive but couldn't these people have read what they were signing?

[Moscow Mule]

I may be naive but couldn't these people have read what they were signing?

I expect so.

But if they were grannies trying to release equity in their homes they may well have been poorly advised, in which instance, there is a case to answer.

[mace]

I may be naive but couldn't these people have read what they were signing?

A lot of financial contracts aren't that straightforward and most likely an advisor steered them clear of checking the small print too thoroughly