High Court case could mean big bills for building societies

West Bromwich Building Society is being taken to the High Court today on behalf of 1,000 elderly homeowners who bought mortgages promising an income for life which subsequently left them thousands of pounds in debt.

The society is being sued for pounds 35m-pounds 40m by the Investor Compensation Scheme, which is seeking to recover money already paid out to hundreds of people who took out home income plans in the late 1980s. Depending on the outcome of the case several other building societies could find themselves with huge compensation bills.

Marketed to people over 60 who no longer had a mortgage but who had little income, the plans held out the prospect of a lump sum and a regular monthly income for life. They payed the homeowner a lump sum out of the mortgage advance and invested the rest in assets designed to earn a high enough to pay the interest on the total mortgage.

When the recession arrived the schemes collapsed as property prices fell and the value of the investments plummeted, leaving people with large outstanding mortgages and no means of payment. The schemes were promoted by a Southport firm of financial advisers, Fisher Prew Smith, using monies advanced by West Bromwich. Fisher Prew Smith has since gone under, as has the firm of solicitors, Wall and Co, that handled many of the mortgages.