Elderly borrowers who took out the 60-plus interest roll-up scheme from C&G through an independent financial adviser are embroiled in a legal battle with the society over the outstanding loans.
They say there is nothing to separate them from other victims of similar schemes who are being treated far better by C&G, and they want a similar rescue deal.
The 60-plus scheme enabled people to borrow up to 25 per cent of the value of their property. Interest on the loan is added to the outstanding balance. Provided the outstanding mortgage does not exceed 75 per cent of the property value, the borrower need pay no interest immediately.
Borrowers under the schemes may not be immediately aware the interest payments are mounting against the value of their property, which in the past few years will have been falling.
These schemes were among those sold by two independent financial advisers, Fisher Prew Smith and Aylesbury Associates. They also sold other home income plans, where the amount borrowed was even greater as a percentage of the property's value. In all these schemes the proceeds were invested in the stock market to pay the interest or provide for the interest on the loans. Many were sold on the back of loans from C&G.
The schemes proved a disaster as investors were hit by soaring interest rates, falling investment returns and plummeting property prices. The society has offered all the other borrowers a rescue package.
Borrowers who were sold the Cheltenham & Gloucester 60- plus income roll-up schemes are angry at being treated differently from other home income plan victims.
Barnett Sampson, a solicitor, is acting on behalf of about a dozen pensioners who took out the 60-plus scheme. They include George Gilbert, a retired newsagent from Essex who, with his wife Annie, took out a 60-plus scheme with a salesman from Fisher Prew Smith four years ago, when interest rates were about 14 per cent.
The scheme released about pounds 20,000 of capital from their house, then valued at pounds 80,000. They put some into the bonds and spent some fencing and double-glazing the house. Mr Gilbert said: 'We never received any of the income promised by the investment.'
Mr Gilbert said that he and his wife had received nearly pounds 5,000 from the Investors Compensation Scheme which they had immediately paid to the building society to reduce their mortgage. The compensation was for money they had lost in the bonds.
The Gilberts' loan now stands at pounds 13,000, on a property Mr Gilbert believes is valued at about pounds 60,000. Interest is rolling up on the mortgage at 8.64 per cent a year - 1 per cent above the prevailing base rate. Even if rates stay as low as this, the amount the borrowers owe will continue to mount.
Richard Barnett, a partner at Barnett Sampson acting on behalf of Mr Gilbert, is pressing the society to treat the 60-plus interest roll-up cases in the same way as it is treating the home income plan cases. Mr Barnett said: 'The society has put together a rescue package for the home income plan people which includes an interest rate cut.'
C&G said it did not consider the 60-plus borrowers to be the same as the home income plan cases. The scheme was a stand- alone product and borrowers were free to do as they pleased with the proceeds.
The outcome of the dispute may be affected by a current court action. A leaflet describing the 60-plus scheme is part of a case being bought by Devon county council trading standards officers against C&G, alleging that the leaflet is misleading as it says no monthly repayments are necessary.
C&G said all borrowers would have been made aware that interest payments on the mortgage were being added to the loan.
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