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Families trapped in homes by the banks

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Interest free mortgages from the 1990s have left them owing hundreds of thousands - thanks to house price rises

Shared appreciation mortgages were hugely popular between 1996 and 1998. Banks would lend up to 25% of the value of a home with no monthly repayments. Borrowers agreed to give up to three-quarters of any increase in the value at sale. And now house prices have rocketed they are being forced to pay huge sums, that means when they sell their home, they have to hand over three‑ quarters of any growth in its price since the late Nineties.

These loans were hugely popular among older borrowers wanting to fund their retirements. The bank would lend you up to 25 per cent of the value of your home — usually interest-free — and you didn't need to make any monthly repayments. Instead, you agreed to give the bank up to three-quarters of any increase in the value of your home when you eventually sold it. In other words, customers were making a huge bet with the bank: if house prices were flat or fell, the customer's loan looked cheap; but if prices soared, they'd owe the bank a huge sum.

Some are struggling to get by in homes that are too big for them; others have been forced to move to a cheaper care home because they have run out of money. Many feel as though they have cheated children and grandchildren out of their inheritance. And the worst part is that there is very little the families affected can do about it.

Daily Mail

 

They sign contract and enjoy the benefits for two decades.

Edited by rollover

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Oh just give them the £192,000 - the tax payer will pay for it.

How was something like this not always on the cards right from the moment the buyers "purchased" the house on those terms (apparently pretty simple terms).  

Have they only just realised "oh dear I just read the contract we signed - I thought we were buying the full house - it seemed so cheap"?

Crowd fund it - maybe some people will cough up.

Edited by billybong

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12 minutes ago, buckers said:

The French are big on these I think? Some sort of deal where they pay you to live in your house and then it becomes theirs on death.

So they're effectively paying you to live in it, maintain it etc and occupy its land while they set about increasing its value by their lending on other properties in the area and elsewhere.

Edited by billybong

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With their home now worth £300,000, that would mean writing the bank a cheque for £192,000.

That would leave just over £100,000 — not nearly enough to buy a home near their daughter, where two-bedroom semis cost £250,000.

Aww. Bless.

Only £100k (profit) for living in a house for most of their adult lives.... and getting ostensibly a free £36k loan.... and 'struggling' in a big bungalo ... and they get to retire with pensions.

Fvck em. There's a growing number of folk behind this generation that's going to get bugger all.

We're all drowning in our crocodile tears.

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David says moving to a smaller house in the area would take a huge weight off their minds.

But the couple can't downsize due to a £33,000 shared appreciation mortgage they took out in 1998.

It seemed like a good deal at the time because it gave them extra cash to live on in retirement.

When they signed up, the couple's three-bedroom house was worth around £125,000. Today, its value is nearer £460,000.

So if the couple move, they will have to pay Bank of Scotland £277,000, leaving £183,000.

David, a retired engineer, says: 'We wouldn't even have enough left to buy a small semi-detached after paying so much to the bank.

'It seems extraordinarily unfair. We are finding it increasingly difficult to manage the land, but we're are now in a situation where we are stuck in this house until we pass away.'

Only £183K left over to buy a place in Newcastle. My brother just bought a 2 bed end of terrace for ~£60 in Sunderland. Here are some nice enough places in Newcastle:

£72K
http://www.rightmove.co.uk/property-for-sale/property-43821936.html

£100K
http://www.rightmove.co.uk/property-for-sale/property-51607579.html

£100K
http://www.rightmove.co.uk/property-for-sale/property-42473802.html

These would leave them with a good £50K after moving costs to continue funding their retirement.

They will still have cleared a £106K profit from their property when you include the £33K loan. That means they got to live in their current property for £19K + maybe an additional £125K in interest payments, a cost of about £5,760 per year. Currently today they may have to pay ~£10K to rent the a similar property. So they have saved maybe £100K in rent in their lives.

I wish someone would give me a £100K to live in a 3 bed detached property.

Edited by doahh

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4 hours ago, Little Frank said:

Only the Daily Mail mainstream media could turn a £100,000 tax free windfall into a hard luck story.

They should have gone with "Bank gifts pensioners £100,000 tax free towards their rent in retirement"

FTFY

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Good to see the highest rated comments are all calling them out on this.

They are just bitter the bank is making more than them out of it but they are still up over 100k  

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The DM have it right as usual - its shocking these boomers are being done out of their entitlement to colossal tax free gains from HPI.

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What they all seem to need is a big HPC.

Quote

But the couple can't downsize due to a £33,000 shared appreciation mortgage they took out in 1998.   It seemed like a good deal at the time because it gave them extra cash to live on in retirement.  When they signed up, the couple's three-bedroom house was worth around £125,000. Today, its value is nearer £460,000.   So if the couple move, they will have to pay Bank of Scotland £277,000, leaving £183,000.   David, a retired engineer, says: 'We wouldn't even have enough left to buy a small semi-detached after paying so much to the bank.

Although they might then regret not STRing and want to take legal action against the market.

They got what they wanted.  £33K mortgage easier to pay off.   Their position in the home standing at £183,000 (if current values could be realised at £460,000).

Compare it to position of renter-savers...

If only we heard more about elderly owners wanting to downsize, in this low inventory (houses on the market) bubble market.  Plenty of proud older couples in the MSM telling what their large homes are worth.

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In other words, customers were making a huge bet with the bank: if house prices were flat or fell, the customer's loan looked cheap; but if prices soared, they'd owe the bank a huge sum.
 

This.

What if prices fell further? They would be proudly advertising their Savvy investment.

 

Edited by Fairyland

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Shared appreciation mortgages were hugely popular between 1996 and 1998.

The banks certainly knew which way the wind was blowing. Didn't these people ever think 'too good to be true'? I guess it's hard to focus with pound signs in your eyes. They took a risk and still came out with a profit. Shut up and spend it or wait for a crash like the rest of us.

 

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And every time these families did any work to modernise their property, the bank takes 75% of the increase in the value. An extension adding £20k to the value? That will be £15k for the bank. A new kitchen increasing the value by £10k? The bank will pocket £7.5k of that, thank you very much.

These deals, with the benefit of hindsight, were ridiculously poor decisions by the homeowners. Not only did they guarantee a nice windfall for the lender (even the most ardent pessimists would expect house prices to rise over 20+ years), but they ensured that they pocket 75% of any investment by the homeowner.

The only victims in this situation are the people in society who were priced out of the market by people making these poor financial plans. Unless these people were miss sold their mortgages (and nobody seems to be suggesting they were lied to) then it is time to pay the bank their share when the property is sold or changes ownership.

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One of the main points of this sort of deal for the buyer is that they get to live in a far nicer house than they could otherwise afford.  In money terms it was 4 times as nice.

The bank isn't "trapping them in their homes" - they're trapping themselves because they don't want to move/downgrade into another house only worth 25% of their current house - that or rent.

Even if the house price hadn't risen that outcome was inevitable without additional funds.

 

Edited by billybong

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Flabbergasted at the lack of financial acuity. 

£30,000 in Jan 1992 is, based on just 2.7% standard inflation, some £58500 today. They are still beating inflation by a large margin.

Take a gamble, win or lose - your call. 

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