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Monday, 13 May, 2002, 08:47 GMT 09:47 UK
Endowment misery grows
A majority of people with endowment mortgages are being warned that they might have to find thousands of pounds extra to pay off their home loans.
Figures from the Association of British Insurers (ABI) show a sharp rise in the number of homeowners facing a shortfall.
Two years ago, 15% of endowment policy holders were being sent "red letters" warning them of a likely shortfall.
That proportion has now risen to 34%.
A further 26% of policyholders are being sent "amber letters", warning of possible shortfalls.
This means that about 60% of endowment holders, or 3.6 million people, are now in danger of failing to cover their mortgage debt, unless they take fresh action.
Alan Leaman, the head of media and political affairs at the Association of British Insurers, told BBC News Online that those who receive the warning letters should act on them.
"What we are concerned about is that if people do receive one of these letters, firstly, they should not panic," Mr Leaman said.
"And secondly, they should take appropriate action rather than shove it in the bottom drawer."
He said the practical steps that people could take would include moving the remainder of their mortgage to a part-repayment mortgage, or starting another savings plan.
Mr Leaman pointed out that people with interest-only mortgages - the type commonly backed-up by endowments - benefited from falling interest rates over the past couple of years.
He said that meant policyholders should now have extra money available to put towards any shortfall.
As far as the endowment policies are concerned, people who have been sent red letters would need their policy to grow by more than 8% a year to cover the shortfall.
Those with amber letters would need growth of 6-8% a year.
For many years endowments were a popular way of paying off mortgages.
The policies are invested in the stock market and when the markets were growing, endowments did well.
But they have come unstuck in recent years because of turbulent stock market conditions and over-enthusiastic growth projections.
Since the market has fallen, endowment-holders have been faced with finding extra money to pay off their debt - or risk losing their home.
Are you concerned that your endowment policy won't cover your mortgage debt? Have you been told you need to save more or are short by thousands of pounds? Use the form below to tell us your experiences.
This is the second time I have received one of these letters and I am getting increasingly alarmed at my mortgage lender giving me the advice to take on this type mortgage and subsequently advising me that it would not be sufficient to pay. Very unsettling to me as I have only a short period to go before retirement and do not wish to extend the mortgage repayment time or put more money into something that won't be the best mortgage for me as previously advised by the mortgage lender. But what can I do? Either way it will cost me more money which I could have been paying off over the last four years.
I am facing a shortfall of over half my mortgage. Redundancy and family mean I simply can't just find other funds. I now have no choice but to sell up and buy somewhere smaller and cheaper.
I have been told that all three of my endowments will fail to meet the target by at least 30%. The stock market has risen astronomically in the last 10 years. I would expect our endowments to do the same. It is the same old fat-cat shareholder first mentality. There should be some form of redress for people like me who are not looking at the huge sum of money promised to us when the policy matured.
This fiasco has to a greater extent been caused by the insurance and financial industry itself. The only problem is, the poor customer is taking the brunt of this incompetence. The people who sold these products took excessive (and in many cases, undeserved) commission in the first few years; this commission has proved to be a very bad investment for the customer in that these people are supposed to understand their market. They obviously don¿t. This abuse of position has been further compounded in that some insurance companies have taken large percentages of the ¿orphaned funds¿ (which really belong to their customers), and used them to pay out large dividends to shareholders and management bonuses. This is an outrageous bonus for incompetence; this money could have gone some way into plugging the gap that now exists in many endowments.
I feel ripped off and very distrustful of anything any so called financial adviser [AKA salesman] tells me. Doubtless these very same "salesmen" will lose little sleep selling more policies to cover the shortfall.
Last year I went to buy a mortgage at my bank. When I asked about an Endowment the response was "We stopped doing them, that's how much faith we have in them". That's very worrying for people who bought them, especially with the over-inflated house prices at the moment.
I moved house five years ago. I decided that I could see this coming so I changed my mortgage to a standard replayment. I am now glad I did! I was able to sell off my old endowment and make a bit of profit from it. I recommend anyone in a similar situation to do the same.
If you buy an investment product that has anything to do with an insurance company you are an idiot. I had a repayment mortgage, much against the fashion of the time, and paid it off in 15 years just by not reducing payments when interest rates were low. Incidentally, in the term "Independent Financial Adviser" only the word "Financial" is true, the other two are lies.
I urge all endowment policy holders to do their own policy performance calculations first before reacting to these mortgage lenders' letters. From my own experience of two years ago, when I received my first such letter, I calculated that from the time in 1991 that I took out my endowment to the time I was sent the my first "shortfall warning" letter my policy had performed far, far better than the letter was suggesting. Lenders base their calcuations on your plan's performance using 1997 as the starting point, whereas my actual starting base was 1991. Thus instead of my policy showing a shortfall I was in fact well ahead in profit. Even with my policy's poor recent performance I am still only down to breakeven point and nowhere near the 30% shortfall my letters suggest. Since I have another 14 years to go with my plan and stock markets are cyclical I intend to carry on and do nothing for the time being. I realize that my experiences do not help those policy holders who are about to reach maturity and those who took out plans from 1997 onwards but for those of you who took out plans prior to 1997, especially between 1988 & 1994, then I cannot stress enough that it pays to do your own calculations first. It can really save you from a great deal of unnecessary worry.
I find it a bit rich that all these people who started an endowment mortgage when interest rates were between 10 and 15% are now complaining that because interest rates have fallen to 5% their projected returns have similarly diminished. Why are they surprised? How did they think projected returns of over 20% could be maintained? And what have they been doing with all the money that they've been saving from their dwindling mortgage payments? Not saving them under the mattress, obviously.
So the advice seems to boil down to covering the shortfall by buying further products from the Financial Services Sector. Weren't they the ones who recommended endowments in the first place.
A projected shortfall of 3k for a policy for a mortgage of 35k. When sold this Policy I was told to expect the mortgage covered with 15k returned to me. That's 18k adrift on a 35k policy. And they have the audacity to ask me to take out a new "top up" policy. I think not.
We did alright with mortgage repayments. I simply put the whole lot onto an accumulator at Lingfield Park recently and won it all back. It's a much beter investment!
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