'My endowment nightmare'

BBC News spoke to an endowment holder who believes he was mis-sold.

John Rouse, 54, takes the promises of the UK life insurance industry with a hefty pinch of salt.

John, like many other endowment mortgage holders, is learning the hard way that a sure thing is rarely what it seems.

When John and wife Sue bought their four-bedroom detached in Chesterfield for £125,000 in 1996, they relied on an endowment bought in 1987 to cover their £65,000 mortgage.

They funded the rest of the house purchase from savings.

Smooth operator

John says that a smooth-talking financial adviser talked him into buying an endowment.

I feel as if the whole system is geared towards insurance firms and not consumers Read what you can do if you have an endowment shortfall

"I was told that it could pay off a mortgage and provide a tidy lump sum at maturity," he said.

"Endowments just seemed the way to go, everyone seemed to have one. When your house is on the line you assume that the guarantees on offer are copper bottomed."

Endowment failure

However, when the endowment matures in 2010 John faces an estimated shortfall of £20,000.

"This is devastating - I may have to take out a loan at the age of 61. My wife and I are going to have to work until normal retirement age and perhaps even a little beyond."

With an endowment mortgage, the borrower pays off only the interest on the loan each month.

The mortgage holder invests money into a separate endowment fund to pay back the underlying debt.

Unfortunately a combination of stock market volatility and lower interest rates has meant that endowments have underperformed.

Colour coded

The Financial Services Authority (FSA) has ordered insurers to issue letters to consumers, warning them of any potential shortfall.

All people who have an endowment should by now have received at least one or two "re-projection letters".

These are colour coded according to the level of the potential shortfall.

Green means the endowment is on target, amber strikes a note of caution and red indicates a likely shortfall.

Mis-selling

Many, like John, claim that they were mis-sold their endowment policy.

The usual grounds for a mis-selling claim are that the endowment holder was promised that their mortgage would be paid off, or were not informed of the investment risk.

John Rouse has given up hope

Cruel twist

John has largely given up hope of redress.

He bought his endowment before the Financial Services and Markets Act came into being.

As a result, he is not entitled to take a mis-selling claim to the Financial Ombudsman Service.

Instead he has had to rely on Norwich Union's internal complaints procedure.

"They have washed their hands of my complaint, writing that as I bought it through a financial adviser they had no responsibility for my position."

"I could take Norwich Union to court but I can't afford to do it. I feel as if the whole system is geared towards insurance firms and not consumers."

In the normal course of events John and Sue would be able to take solace in the fact that rising house prices would mean that they had made a profit on their home.

However, in the cruellest twist of all, their home has subsidence and is currently worth less than they paid for it.