Endowment sellers 'not up to scratch'

Buyer beware: Policy holders have been badly advised

Two-thirds of companies selling endowment mortgages may have given customers misleading advice, the government's money watchdog has told the BBC.

The Financial Services Authority (FSA) says the majority of endowment policy holders - three million households - are facing a shortfall in repayments.

The whole thing stinks

Howard Ashworth, policy holder

Advice from mortgage brokers about what product is best for customers remains unregulated by government and is covered only by an industry code.

Speaking on the BBC's Panorama programme, the FSA's director of investment business Michael Folger says: "In only about a third of the cases could we be confident that the right advice has been given.

"We've made it clear that firms have got to get their act together through this year."

Endowment policy holders pay into an investment fund which will theoretically provide a lump sum to pay off their loan at the end of the term.

The fear about endowment schemes is that when interest rates are low, the policies may not provide enough money to repay the mortgage at the end of the term.

Evidence filmed secretly by Panorama shows the mortgage lenders' code is being flouted.

One broker is shown pushing endowment polices and downplaying repayment policies - clearly breaking the code.

Iain MacQueen-Sims, a mortgage auditor who sat on the FSA's advisory panel, has told Panorama that the advice should have been regulated.

£20,000-a-month commission

He says: "You get the impression that the government for some reason is frightened of the industry.

"I can imagine a scenario where in five or six years' time we'll be having a similar conversation about things that are happening now that won't explode until later on down the line."

Many salesmen who pushed endowments in the late 1980s are still working in the industry as Independent Financial Advisors, the programme reveals.

Former GAN salesman Julian Yolland has told the programme that he feels 'guilty' at the way the endowments were sold in the '80s, when he was earning £20,000 a month in commission.

Mr Yolland, now an Independent Financial Advisor, says he left GAN because: "I wanted to be able to sleep at night".

One couple facing a shortfall are Howard and Tracey Ashworth, from London, whose monthly payments for their Eagle Star endowment mortgage keep increasing.

Mr Ashworth says: "The whole thing stinks. Somebody is making a lot of money and it isn't us."

Panorama - The Mortgage Timebomb
Click here to read a transcript of the full programme, first broadcast on Monday 22 May on BBC One.