Homebuyers 'shun endowments'

Will your endowment pay your mortgage?

House hunters are turning their backs on endowment mortgages in their droves, according to new research from the Office of the Deputy Prime Minister.

During 2001 and 2002 only 10% of new mortgages were endowments, while three quarters were arranged on a repayment basis, according to the Office of the Deputy Prime Minister's report.

Between 1985 and 1989, in contrast, 61% of new home loans were endowment mortgages, while just 30% were repayment mortgages.

Endowment mortgages - where homebuyers contribute to a stockmarket-linked investment scheme, or endowment policy, designed to generate enough cash to pay off their loan after 25 years - were once the UK's favourite form of home finance.

But recent reports that many endowment policies sold in the late 1980s and early 1990s are set to fall short of their projected value, leaving homeowners unable to pay off their mortgages on schedule, appear to have deterred most homebuyers.

Many customers faced with a shortfall between their mortgage debt and what the endowment policy will pay out at maturity, are claiming they were not made aware of the investment risk associated with endowments.

This has led to accusations of mis-selling by mortgage lenders.