Penny's story - shared appreciation mortgage

Penny was shocked to discover that her mortgage deal had left her owing much more than she had borrowed.

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Penny: I bought this house in 1997. Saw it, fell in love with it, liked the area and it was just what I wanted.

Gloria Hunniford: Penny could have used her savings to buy the house outright. But, wondering if it might be better to keep some of that money back for a rainy day, she arranged a visit with an independent financial advisor.

Penny: We decided that it was easier for me to have a small mortgage. It would then give me the opportunity to have a little bit of money in the bank. The mortgage was sorted out for £17,000 and that amount I was happy with.

Gloria Hunniford: Penny didn’t think anymore about it until last year. She decided the time was right to re-evaluate her finances. She went to a new financial advisor.

Penny: She said ‘I’ve got some devastating news to tell you. The mortgage that you had was a shared appreciation mortgage. It means, when you die, your children will have to pay a hundred thousand pounds’. I couldn’t believe this was happening to me. How can a £17000 mortgage suddenly end up being £100,000 that I owe them?

Gloria Hunniford: Effectively that’s an increase of 490 per cent. Penny just couldn’t understand how her loan had suddenly got so much bigger.

Financial Advisor: A shared appreciation mortgage is an arrangement where a home owner can borrow up to 25 per cent of the value of their home and when they come to repay that borrowing they also have to pay up to 75 per cent of the increase in value of their home as well as the loan. But, the loan itself is on a zero per cent fixed interest rate.

Gloria Hunniford: But, what no-one at the time had predicted was the property boom at the turn of the century. So, as house values shot-up so too did the amount of money that anyone with this product would find themselves owing the bank.

Of course if the property market had gone down instead of up then Penny would have paid no more than the value of her initial loan. Penny’s bank told us that they ‘take a very sympathetic approach’ to anyone in difficulty because of their shared appreciation mortgage. But, stresses that customers were ‘strongly recommended to take financial and legal advice’ to explain how the product worked.

Penny: I thought I’d done everything right. I’d gone to a proper person that would sort out mortgages. I didn’t understand. I would hate that to happen to anyone else.

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A short video about Penny who was shocked to discover that a mortgage she had taken out years before had ended up costing her almost 500% more than she had initially borrowed.

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