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Friday, 6 July, 2001, 07:46 GMT 08:46 UK
Have you been caught in the endowment mortgage trap?

Homeowners are urged to take immediate action to sort out their endowment mortgages or risk losing their homes.

A survey by the Financial Services Authority (FSA), the City watchdog, reveals a high degree of inaction among endowment holders - even though many face shortfalls worth thousands of pounds.

Endowment-linked mortgages were the most popular type of home loan during the 1980s and early 1990s, but growth projections were based on healthy market conditions at the time.

Since then, poor stock market returns combined with low inflation have left millions struggling to cover their loan.

What are your experiences of endowment mortgages? Have you managed to cover your shortfall? Did your bank or financial adviser help you to cope with the situation?

This debate is now closed. Read a selection of your comments below.

Your reaction

The rule in our free market economy is "caveat emptor"

Charles Moore, Scotland
The rule in our free market economy is "caveat emptor". It literally means "buyer beware" but its real meaning is "If you can find a way of ripping people off without breaking the law (eg selling them dodgy endowment policies with false promises)then you are virtuous and deserving of prosperity and good fortune". Your victims are just fools who deserved to be taken for a ride. Whatever happened to morality?
Charles Moore, Scotland

Losing your home by this method pales with the approaching risk of a global property crash. A gold bullion crisis of epidemic proportions is currently being played out. The problem stems from the thousands of tons of gold that has been borrowed and sold to produce cheap capital to fuel all these markets. Problem is that the gold is borrowed and must be paid back. This is not possible since there is nothing like the amount of gold available, thus the Bank of England's vain attempts to suppress the gold price and manipulate the gold market. Better to remain liquid than face the approaching global financial crash.
Peter Iveson, Canada

Some of your contributors have the great benefit of hindsight - some of us were sold this product as the norm 15-20 years ago. It was not sold as a package that would involve risk and I for one as a first time buyer would never have gone down that route had it not been put forward as the only logical and trouble free way to go!
Walter, UK

In my opinion, endowments are still OK

Rodger Edwards, UK
In my opinion, endowments are still OK, providing that purchasers are insistent upon a) being sold a proper WITH PROFITS policy and b) being sold a policy that meets the value of the loan at a very modest projected annual rate of growth. (5% or less) Both of these limitations will raise the actual cost of the endowment. But then again, you pay your money and you take your choice.
Rodger Edwards, UK

The FSA's reluctance to begin a mortgage review seems inconsistent. Endowments aren't going to cover the cost of pensions because of falling investment returns. This is the same reason a lot of people have lost out by transferring deferred pension benefits from occupational schemes. Yet pension transfers are included in the pension review.
Tony Beer, UK

I have an endowment mortgage. I took it out with my eyes open and understood that there was a degree of risk associated with it. On balance I was prepared to take that risk. We have received letters from the endowment providers stating that they would now provide forecasts based on different rates of growth, but that doesn't tell me that what my actual growth rate has been to date. Most of these letters have been nothing other than a standard format containing no information specific to my policy. Yet their advice is to put more money into a fund which is already possibly under performing. The endowments are long term investments and should be treated as such. As ever there is no end of misinformation being spread about on this issue. One figure that I would like to see is the actual number of endowments that have matured and not covered the mortgage. I suspect very few.
Paul Styles, UK

The only reason for taking out an endowment is the prospect of making money out of nothing. The sellers use people's greed to sell the things and then when it looks like it might not work out, the buyers look not only greedy but stupid. And it is only at this point that they complain. Why should there be any compensation? All that happens is that the rest of us will have to pay one way or another and if the stock market boomed and there were no prospects of a shortfall would we be hearing any complaints?
Iain Macintosh, UK

Brokers can exploit the British consumer's belief that you can get something for nothing

Jon Livesey, USA
Brokers would not be able to sell complicated instruments such as endowment policies were it not for the fact that they can exploit the British consumer's belief that you can get something for nothing. In most other countries, people understand that a loan is a loan and that in the end you have to pay it back, so clever- dick schemes that appear to pay part of the loan for you, simply don't sell.
Jon Livesey, USA

It seems to be that those people who opted for Endowment Mortgages did so on the understanding of a)getting an investment on their completed mortgage return and b) lower monthly repayments compared to boring old Repayment Mortgages. So clearly they were taking a chance, or a risk, that if the economy didn't suit the best needs for their EM then they would suffer the consequences. It's no good moaning about what advisors told you to do; buying a house is the biggest investment you'll ever make so you do your homework from as many different sources before you commit, especially with something as risky as EMs.
Russell O, England

Two years ago we were looking for a mortgage, and even though we told advisers we weren't interested in an endowment, that is all they tried to sell us. Luckily we did the sums, got a flexible mortgage, and have paid more than a third of it off already!
Alison, UK

It's rather unfair to blame individuals for signing up to bad deals. The financial services industry have a talent for thinking up "products" that defy comprehension by the layman, combined with a marketing army trained to put a good spin on anything. It is now known that endowments were a risky move (though, had the last ten years produced high inflation no one would be complaining now), but it was "common knowledge" that they were good value twenty years ago. How long before we discover equally nasty stings in their replacements?
Julian Hayward, UK

Complacency and ill-placed loyalty will cost you thousands of pounds

Joe, UK
The likelihood that endowment mortgages would fail to fulfil their forecasts was made public by the Sunday press way back in 1995. I took note of their gloomy prognosis and re-mortgaged soon thereafter. I've subsequently re-mortgaged again (last year) to take advantage of a discounted rate. On a loan of 100k over 20 years, I estimate that I've saved myself at least 34k in interest and charges by re-mortgaging twice. When it comes to mortgages, complacency and ill-placed loyalty will cost you thousands of pounds.
Joe, UK

I started with a repayment policy, which after a few years I converted to an endowment mortgage. Early this year my endowment came up and I received 80% more than required to pay off my mortgage. The best investment I have ever had. You do have to view these things over the full lifetime of the investment.
Steve Thursby, Leeds

My brother and I asked our Estate Agent/Mortgage Broker to prepare a Repayment mortgage for us. He left it a long time, then to our horror gave us the forms for an Endowment mortgage. In the end we went to the building society for a repayment mortgage. At the time we strongly felt the mortgage broker wanted us to start an endowment mortgage so his commission would be higher. His delay cost us thousands of pounds, as we missed the 1989 deadline for dual income mortgage relief by a couple of weeks.
Brian Milner, UK

I took out two policies with the same insurer, one in 1986 and a second in 1989, for a lesser amount. At the time I opted for the slow start endowment simply because I couldn't afford the monthly outgoings any other way. I don't think I was duped, although the projections of future value were very optimistic. Subsequently my insurer has written to inform me that the larger policy is likely (under the new assumptions) to exceed the amount necessary to pay off the loan, but the smaller policy, which is to mature at the same time is likely to fall short of the required amount. They magnanimously offered to sell me a new policy to make up the shortfall, despite the fact that the sum of the two projected maturity values would cover the total loan.
Derek Long, UK

When I signed up for my endowment I went for a projected value some 20% over the value of my mortgage. This gives me a double protection - firstly if it meets projections I get a nice lump sum at the end of it, but barring a 25-year stock market disaster it will still pay off my mortgage, even if it does under-perform a bit. Seems like a simple solution to me.
Dave Tankard, UK

Thanks for your concerns Graham. I did pretty much as you suggested and decided that for my purposes an endowment was the most appropriate vehicle for my investment. As always, do your own research and remember, the value of your investments can go down as well as up. You may not get back the full amount invested.
John B, UK

Endowment policies, as they are presently constructed, are weighted far too much in the interest of the company, with whom the policy holder has taken them out. If through market trends or mis-investment, the policy does not yield a sufficient return, the policy holder carries the entire burden. A much fairer solution, would be, if the company were required by law, to guarantee the minimum return needed to cover the capital. There would be a much more equal share of the risk. Competition based on a company's investment performance, would mean more protection for the consumer.
Matt, UK

I am paying into an small endowment at the moment but I do not even have a mortgage. I am using it as a way to start paying for a house before I own one. I have now decided that I will continue paying into the endowment but get a standard repayment mortgage as well so that in 22 years time when my endowment pays out it is an unexpected lump sum.
Dominic, UK

I took out an endowment mortgage three years ago and although I've also since had to adjust my contributions, it still costs less (albeit not much), than a repayment mortgage would. And, I have accrued potential capital which I can take with me. Everyone seems to conveniently overlook the weakness of repayment mortgages being front-loaded with interest for the first 5 years.
Greg Turner, UK

It pays to do a bit of research yourself

Graham, Scotland
Well John B, one of the points that make endowments such terrible investments is the preposterous charges associated with them. Large lumps of the first few years and portions of subsequent years, the payments you make are just paid to the advisor who sold the endowment and other charges associated with the managed nature of the funds. According to a number of financial web sites (Motley Fool, etc) you'd be better putting money regularly into a tracker fund. Not only are the charges much smaller than managed funds, but the trackers typically do better than the managed funds over the medium/ long term. A fund manager may get it right a few years on the trot, but almost never gets it spot on over the number of years a mortgage is alive. It pays to do a bit of research yourself and not just believe the guy who gets commission from what he sells you.
Graham, Scotland

I have nearly 17 years left on my mortgage which isn't too big considering it's in the South East of England. My endowment payments are almost 30% of the loan each month, so imagine my surprise when one of the largest endowment companies (brokered via the Nationwide) are predicting I could be almost 30% short of my final payment!!!
Darren, UK

I had a repayment mortgage and all sorts of insurance salesmen knocked on my door in the early 80's trying to persuade me to change to an endowment one but for some reason which I still don't understand, I refused. Then I applied for extra money to pay for double glazing and a new kitchen and decided to get an endowment mortgage just for that part of the loan. I probably made a mistake but as it is such a small amount now, I can live with the consequences.
Gill, UK

It is astounding how we all blame the advisors, yet can not accept our own stupidity

I, N Ireland
So, why did everybody take Low Cost Endowments? Because they thought they would get a large tax-free lump sum at the end as well as paying for their house! Any illustration after 6/4/88 would have confirmed not guaranteed and a possible shortfall on maturity at the lower rate of growth. People as ever did not read anything and just signed details without checking or taking time to think. How can you guarantee future investment returns? It is astounding how we all blame the advisors, yet can not accept our own stupidity.
I, N Ireland

What was that motto again - 'look before you leap' perhaps? If you took the time to think about what you were doing, then you can't complain that the risk you took might not work out. If you committed to many thousands of pounds of expenditure purely on the basis of a salesman's set of figures then you were acting irresponsibly.
Mark, UK

I follow a simple rule: When something sounds too good to be true, it probably is.
Ben, Netherlands

I received a letter from Scottish Amicable stating that my Endowment Policy (taken out 1988) would need to make at least 7% - 8% to break even in 2013. At last years bonus rate my endowment would have a shortfall of about 7K. I went to see my mortgage provider (Woolwich) and swapped to their Open Plan base rate tracker repayment mortgage, cashed in my endowment and have spent that money on upgrading my house (bathroom and kitchen). The best thing I could do and I have not bothered about compensation.
Mary Leeson, UK

Allied Dunbar have warned us of a potential shortfall - far from the extra lump sum they promised - the Ombudsman is now investigating that. Otherwise we've done nothing - the cost of changing to a repayment mortgage at this stage is too high: we just hope to make enough profit when we sell on retirement to pay the loan and buy something much smaller.
What do the insurance companies expect - that we would rush to pay them even more money once they had admitted letting us down so badly? It makes more sense to pay any extra direct to the lender and so reduce the debt and the interest payable on it.
Diana Pinnell, UK

We've had a rocky year on the stock market so people are getting paranoid about it all

John B, UK
I took out an endowment-backed mortgage 18 months ago, well aware of the chances of either a surplus or shortfall at final maturity. To say it may or may not make it at this stage is rather pointless really. If you calculate contributions based on a 6% growth and then revise the growth to 4% then it's pretty obvious there will be an apparent shortfall. If the market grows 8% there will be a nice surplus. We've had a rocky year on the stock market so people are getting paranoid about it all. That said, people who were told their final payment was guaranteed clearly deserve recompense for what is an outright lie. One consideration the advisor who sold me my endowment suggested was that if the value is within about 10,000 either way of the required final value, that figure will be worth less in today's terms due to 25 years' worth of inflation.
John B, UK

People are fools if they don't read into things themselves.
D. Cooper, UK

Endowments were mis-sold as badly as pensions in the 80's. I bought a house and was given the impression that I would be mad to opt for a repayment mortgage. What I didn't know was that my entire first year's payment went out as commission. The insurance companies have been allowed to dodge the issue here and they should be forced to guarantee that their policies cover the amounts they stated they would when they were sold.
Phil, UK

Everyone who bought one of these should have been made aware that they were taking a risk that the policy might not grow large enough to pay off the loan. This could be another scandal on par with the private pensions mis-selling scandal, although it will be much more difficult to prove negligence.
Tom, UK

Was the forecast done honestly?

Ian, England
My projection from the firm that took over London and Manchester was that the policy was on target but the current value of the policy has dropped almost 1000 since then (despite an extra year's payments). Was the forecast done honestly?
Ian, England

I guess we were lucky. When we tried to get our first mortgage our "advisor" tried to sell us an endowment. Fortunately he was so patronising ("of course you'll end up making money on it, I don't see how you can fail to") that we went for a repayment just to spite him.
Al, UK

I was suspicious of endowment at the time so didn't go for it. The reason is now obvious.

As someone who took out an endowment mortgage only two years ago I thought I would have had some comfort from the fact that my mortgage lender (Abbey National) would be aware of overselling and have curbed its projections. Imagine my astonishment after only one-year of the mortgage to be told that it may not cover my loan.
Gerry, Scotland

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02 Jul 01 | Business
Endowment shortfalls warning
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