Thousands of elderly people are unable to move house, trapped in their homes by a deal they did with a bank more than eight years ago. If they sell, the bank will seize more than half the value of their home. The deal has brought the banks extraordinary returns. Lending elderly homeowners an average of £17,000, today the banks would take an average of £98,000 to repay it. Not a bad return over 8 years.

The products, called Shared Appreciation Mortgages or SAMs, were sold by Bank of Scotland in 1996-1998 and Barclays for a few months in 1998. The deal was that you borrowed a quarter of the value of your home but repaid neither interest nor the amount lent. In return the bank would take three quarters of the growth in the value of your home when it was sold. When the deal was done house prices had barely begun to recover from the drift downward that began in 1989. Barclays sales literature used an illustration of house prices rising by 4.5% a year. So it seemed a good way to release some of the value of your home leaving the banks to take their profits only when you or your heirs sold the house. And if house prices didn’t rise the loan would effectively be interest free.

At 68 Richard Snelling and his wife were still renting property and they decided they had to use what money they had saved to buy a home for their retirement. The house they wanted in the east of England was a shade under £70,000 and they had almost £52,500. Getting a mortgage for the rest at 68 was difficult until Richard saw an advert in a Sunday paper for a SAM with Bank of Scotland. His adviser, who had not found them anything else, arranged the loan of about £17,500 – a quarter of the value of the house. Making no repayments suited the retired couple. And when Richard saw that the bank would take three quarters of any growth in the value of the property he was sanguine about that too.

"At the time they gave an illustration of what the effective interest would be – about 8% on average Now that seemed quite expensive for a mortgage but with no repayments I thought even if the interest doubles it is not that much and I wouldn’t be around to worry about it. So we took it. At that time mortgage rates were higher than they are now and capital appreciation was relatively low."

But that soon changed. Richard’s house is now worth £180,000 – which is £110,000 more than in 1998. He owes Bank of Scotland three quarters of that gain or £82,500 add that to the original loan of £17,500 and HBOS owns £100,000 – more than half – of the Snelling home. If they sell it they will be left with just £80,000 – not enough to buy anywhere else.

"We do feel trapped. We would like to move closer to London. At 75 we’re fit now, but we might need help of support or our families who live closer to London. And if one is left alone that will became more important. But we cannot move."

And there is another trap the bank has set. Before they put the house on the market they have to get it valued at their expense but using a valuer approved by the bank. If they sell it for more than the valuation the bank uses that price to work out what it is due. But if they sell if for less, then the bank still counts the sale at the valuation their valuer has put on it. And the valuation only lasts three months which stopped SAM victim Reg Bayliss selling his home in Southampton. He took out a SAM from the local branch of Barclays in 1998, borrowing £20,000 to repair the roof and fit new windows. Today his £80,000 home would be worth more than £216,000 and Barclays would take more than £122,000, six times what they lent him. But when he tried to sell up a couple of years ago he couldn’t.

"You have to have an approved surveyor and they charge you £180 but they only give you three months to sell it. I got a buyer but I couldn’t get it done within the three months. So I would have had to pay another £180. That’s another loophole. I would be happy for them to have say £40,000, twice what they lent me, that’s fair enough. It’s extortion. That’s what a solicitor I talked to said and I agree."

The bank’s stake grew so rapidly because Barclays takes the capital growth in three quarters of the home’s value even though the bank only owns one quarter of the home. Since these loans began property prices in the UK have almost trebled. The return on Reg’s loan equals an APR of 25%. Reg would have done better to borrow the money on his credit card. The bank of course took no real risk as the debt was secured on a property which, even if prices fell, was never going to be worth less than the original loan. At worst it would have lent the money interest free.

Reg says he did not understand the contract and it did not warn him of the possible consequences.

"If they had put on there you borrow £20,000 and pay back more than £100,000 I would have said stick it. I could have borrowed that and paid so much per week. But they were advertising it as a good deal."

Barclays admits that its literature used an illustration of an APR of between 3% and 8.7% but says it did warn customers to take financial advice.

Reg and Richard admit that the banks are merely enforcing their contract. But Richard believes that circumstances have changed so much that the contract should now be revised.

"There is such a thing as an unfair contract, if a contract is so one-sided. It wasn’t at the time it was signed but I do think it has reached a stage where it is now."

Richard and Reg are not alone. About 12,000 people took about Bank of Scotland loans between November 1996 and February 1998. Another 3000 took out a similar product from Barclays between May and August 1998. Many of them are now part of an action group – Struggle Against Financial Exploitation (SAFE) – which is campaigning on their behalf. Elaine Williams is a director.

"We are beginning to make headway. It is totally unethical product, a horrendous product. People are being trapped. They can’t downsize. But we have evidence that staff told them it is transferable. It isn’t. They can’t maintain the property. But staff told them they could draw down more. Now they can’t. Some are too terrified to tell their children what is going on. I get children coming to me after their parents have died asking what has happened to the value of the house."

Barclays, which sold the products direct, denies those claims. Bank of Scotland SAMs were sold through financial advisers or mortgage brokers.

SAFE believes that a fair contract would give the banks the growth in value of the quarter of the home they effectively own, not in three quarters. It is lobbying to get the contracts changed retrospectively. That job is made harder because the banks sold on the debt to other investors who are making the large profits. Robert Owen, another SAMS director told me they have now discovered who they are.

"We’ve tracked down the people who own those bonds and are in negotiation with them. Both are vested overseas which doesn’t help matters. We are still in negotiation and I don’t want to talk more on that. But we have put a proposal to them and they are considering it."

The two banks are both adamant that they will not change the deal and are entitled to their money. A spokesman for Barclays told me

"Barclays took extensive legal advice from leading City solicitors and Counsel relating to all aspects of the SAM scheme, including the contents of the brochure promoting it. Against this background, we are satisfied that the brochure was accurate and did not result in any mis-selling of this product."

And Bank of Scotland said "Prior to any loan we recommended that applicants sought advice to be sure it was suitable and they were aware of the obligations they were getting into. Applicants would be told that the money secured included the shared appreciation percentage."

As Shakespeare said "I’ll have my bond; I will not hear thee speak;"