It's time for the banks to compromise on shared appreciation mortgages that hit borrowers for astronomical sums, says SARAH DAVIDSON

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To say shared appreciation mortgages are controversial is rather an understatement - they divide  opinion, cause tears, arguments and anger. 

People who didn't take them say those who did just have sour grapes now the time has come to pay. 

Meanwhile many of those who did take them are trapped in homes they can't afford to leave and often can't afford to look after.

Some face the bank taking up to 75 per cent of the rise in value of their homes in addition to tens of thousands of pounds worth of interest over the years

Shared appreciation mortgages were offered by Barclays and Bank of Scotland in the 1990s

But there is a reason they are no longer sold. 

Whichever camp you fall into, most agree they were a mistake and under existing rules, banks simply wouldn't offer them.

Shared appreciation mortgages were offered by Barclays and Bank of Scotland in the 1990s and offered borrowers a loan up to 25 per cent of their property's value interest free for life.

In return, when the property was sold, the bank would take up to 75 per cent of the uplift in value of the property as payment. 

Both banks agreed that if the value of the property fell, they'd take their share of the loss.   

There is no getting away from the fact that many of those who took SAMs thought they were getting a great deal, freeing up cash from their homes often without the need to pay a penny of interest until they sold up. 

Many also admit that they took legal advice before putting pen to paper and drawing their money down from Barclays and Bank of Scotland.

Indeed, Barclays actually insisted that borrowers instruct an independent solicitor to explain the terms of the loan they were taking. All borrowers had to sign a form stating that they'd done this and understood what the implications of the mortgage were. 

Nearly 20 years on and house prices have rocketed; what seemed like a good deal then, now looks atrociously expensive.

For many borrowers who signed up to the SAM on offer from Bank of Scotland, which charged an additional rate of interest at around 6 per cent, the outcome has been catastrophic. 

Not only have these borrowers paid tens of thousands of pounds in interest for a loan that was often no more than £50,000 - they also face losing 75 per cent of the appreciation in value of their property. 

They have paid over the odds for their mortgage over almost 20 years and by the time they have sold, they will have paid the bank more than the value of their home.

That these people signed the contract is indisputable. But that they did so in full knowledge of what they were signing and its implications is a much greyer area.

Many of these borrowers - particularly those who took their shared appreciation mortgage from Bank of Scotland - were offered no legal or financial advice. They simply filled in a form and posted it back to the bank.

They were also, more often than not, retired, vulnerable and elderly. 

Those who took the deal from Barclays did take legal advice, but it seems that this wasn't what most people would understand legal advice to be today. 

For some, anecdotally, the only question their solicitor asked them was: 'Have you read the brochure? Yes? Fine, sign there.' Hardly an explanation of what was a pretty complex contract. 

Shared appreciation mortgages were sold with no financial advice from the bank

But these mortgages were sold in a different time - years before mortgage regulation was introduced - meaning the Financial Ombudsman Service has limited power to investigate complaints. 

In some instances, I think the complaint should in fact be directed at the financial adviser or solicitor who advised the borrower to take the deal without explaining what it meant.

Unfortunately, more often than not these solicitors are no longer practising and if I had a pound for every time I was told that the financial adviser who recommended the deal was out of business, well, enough said. 

There's another reason the deals are difficult to dispute; the way they were set up means they were often not subject to the same rules as most other mortgages.

The loans were rolled up into bundles and sold on to independent companies. This means that, in theory, any complaints about the loans are no longer the problem of the banks - they have passed on their responsibility to those companies. 

These aren't  governed by the banking code, which means the Ombudsman has little power to help borrowers who complain.  

Ultimately, the point is not whether the banks told their (often financially naive) customers what they were up to. They did.

The point is whether these borrowers could reasonably have been expected to understand the nature of the contract they were entering in to. 

The many people I have spoken to in the past weeks say they did not.

The banks have been here before: endowments, payment protection insurance and packaged bank accounts have all been mis-sold by banks

And there's another question - why were none of the borrowers I've spoken to offered an alternative loan on different terms?

I think it's time for the banks to compromise. In a world where bondholders are forced to take 'haircuts' on their returns because of the deteriorating state of the Greek economy, why shouldn't a bunch of bankers who invested in shared appreciation mortgages 20 years ago take a haircut on their already astronomical returns?

Nearly all of these borrowers are now elderly, vulnerable, physically and financially unable to look after homes that are unsuited to their needs and unable to move or pay for care. 

For them, the difference of, say, £50,000 is life altering. For the banks and investors, which have already benefited handsomely, it's a trifle. 

Nearly all of these borrowers are elderly, vulnerable, physically and financially unable to look after their homes

This is Money would like to see Barclays and Bank of Scotland offer shared appreciation mortgage borrowers a reasonable cap on the debt owed.

This should be open to negotiation and assessed on an individual basis, but could, for example, be equal to interest on the loan paid at an average market rate over the lifetime of the mortgage.

Sometimes institutions should do the right thing for their customers. 

When taxpayers were forced to bail out Bank of Scotland for atrocious mismanagement, these borrowers contributed. It may be time to see the tables turn.