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Last Updated: Thursday, 17 June, 2004, 23:23 GMT 00:23 UK
Ask the expert special: Endowments
Louise Hanson
Louise Hanson of the Consumers' Association

BBC News Online's Ask the Expert column gives readers a chance to have their financial questions answered.

The most frequent questions we receive concern endowment mortgages, a type of home loan that relies on a stock market-linked investment to repay the mortgage debt. They were widely sold in the 1980s and 1990s.

Many borrowers were told their loans were guaranteed to pay off their mortgages, but some of those promises have fallen well short.

An estimated 3.5 million households are now facing shortfalls of more than 5,000 on their loans.

But how do you know if your loan is facing a shortfall? Can you qualify for compensation? And how do you navigate the endowment redress minefield?

In the third part of a special series, Louise Hanson, head of campaigns at the Consumers' Association, which has launched a campaign to educate consumers about endowment shortfalls, provides answers to questions based on your most common queries.

My lender is not being very helpful, and is refusing to listen to my complaints about endowment mis-selling? Where should I go?

It is important to complain to the right organisation about a mis-sold endowment mortgage. You need to complain to the company who employed the adviser who sold you the endowment. Most often this is an insurance company but it is sometimes a lender.

If it was your lender who sold you the endowment then they are obliged to investigate your complaint and should have a final response about whether they think you were mis-sold or not within eight weeks.

If the lender is stalling and you feel ignored or left in the dark, you can take your complaint to the Financial Ombudsman Service after 8 weeks.

DO YOU HAVE A QUESTION?

We have found that many complaints are taking longer than eight weeks, but the company involved is explaining the delay and keeping the customer informed.

If this is the case, it is probably worth waiting for a final decision form the company. If you are unhappy with the response, you can always take the complaint to the Financial Services Ombudsman (see link on right).

I'm not sure about whether I can claim for mis-selling. Where do I start?

You need to consider what grounds for complaint you have - and it is most important to remember you are complaining about the advice you received when you bought your endowment, not the performance of your policy or the fact you may have a shortfall.

There are specific circumstances, some or all of which may apply to you, which give you grounds for complaint.

Consider the following grounds for complaint to work out whether your think you should make a complaint about being mis-sold your endowment mortgage.

If they do, explain this in a letter giving details of when you were sold the policy, who sold it to you and the circumstances of the sale.

1. Was the endowment suitable for you?

Your adviser should have made sure an endowment was the best way of repaying your mortgage depending on:

ENDOWMENTS: WHO CAN HELP?
Financial Ombudsman Service: 0845 080 1800
The Financial Services Authority: 0845 606 1234 (from UK) 020 7066 1000 (from overseas)
Financial Services Compensation Scheme: 020 7892 7300

  • Your financial circumstances at the time.
  • Your attitude to risk.

These are some of the reasons why the mortgage may not have been suitable for you:

  • Other options for repaying the mortgage were not discussed fully with you.

  • The adviser didn't explain how your endowment would be invested and explain the risks involved.

  • The adviser didn't explain that an endowment policy is a long-term commitment that gives a poor return if you cash it in early.

  • The adviser didn't check you were comfortable with the risks of stock market investment.

  • The adviser should have explained that the amount you would get back depended on the performance of the policy.

  • The adviser may have said the policy was guaranteed or would definitely pay off the mortgage. This may be grounds for complaint if you can prove it (in writing). If you have no proof, still include it in your complaint as it may strengthen your case, if that is what you were told.

2. The sale didn't follow the rules:

Financial regulators set out what should happen when an endowment is sold to you, but some advisers didn't follow all the rules.

These are some of the reasons why the mortgage sale may not have followed the rules:

  • The adviser didn't explain any fees and charges and how they affect the return you get on your savings.

    If you bought your policy before 1 January 1995 you should have been given product particulars including charges and cash-in values for the first five years. After that date, you should have been given a Key Features document detailing fees and charges and their effect over the longer term.

  • The adviser didn't complete a fact find during the sales process.

3. Payments into Retirement

If your mortgage and endowment was set up to continue past your expected retirement age, your adviser should have checked that you would have enough income in retirement to continue to pay the mortgage and endowment premiums.

If this wasn't discussed or you were told not to worry because the endowment would pay off the mortgage before retirement, you have grounds to complain.

4. Churning

Any endowment policy you held at the time of your mortgage was recommended to you should have been used to back your loan.

Any adviser who told you to cash in the endowment, and then sold you another one to replace it, was guilty of "churning". Not only is this appalling advice, it is also against the Financial Authority rules and gives you grounds for complaint.

Do I have to cash in my endowment before I complain?

No - you can make a complaint when the policy is still in force and you can complain even if the policy is no longer being used as a way to pay off your mortgage. The complaint is about the way it was sold and the advice you received.

If I don't cash in my endowments could it affect my claim?

If your complaint is upheld then most providers suggest the endowment is cashed in as part of the compensation payment.

The idea is that you take the compensation, plus the endowment value and use this money to reduce your mortgage.

However, if you do this, you will need to replace the life cover that is automatically included in the endowment.

If you have health problems which might make getting alternative life cover difficult or expensive - or you have other valid reasons for keeping the endowment, you should speak to your provider.

They can't force you to cash in your endowment as part of your "compensation" but they can possibly review their decision to uphold your complaint, if you refuse to use the endowment value to repay part of your mortgage.

However, as long as you have valid reasons for your decisions most providers are reasonable on this point and it is always worth discussing this with them. If in doubt, check your position with the Financial Ombudsman Service.

My lender has successfully awarded a mis-selling claim, but they have not paid me and cannot tell me when they will. Every time I phone I am put on hold. Should I go to the ombudsman? What can I do?

As you have been successful in complaining about a mis-sold endowment, the company should get on with it and pay up. Unfortunately there's probably no point going to the ombudsman (Financial Services Ombudsman) as they have no powers to force the company to pay up - the best thing to do is complain to the city watchdog.

The regulator should be alerted if companies are failing to treat customers fairly and we're looking for tough action to be taken against companies who drag their heels or give consumers a bad service.

It is bad enough they have mis-sold to you in the first place - the least they can do is pay up promptly. The regulator's consumer line is 0845 606 1234.

I took out an endowment mortgage in the early 1990s. Following advice from my insurance company, I switched to a repayment mortgage to make up the shortfall. I have kept my endowment policy going. My insurance company has admitted that I have been mis-sold, but is only willing to compensate me up to the date I switched to repayment. Is this fair and correct?

It looks like their approach is in line with cases handled by the Ombudsman. The purpose of compensation is to put you back in the position you would have been in had you received good advice in the first place.

Therefore the period you were losing out was during the time your endowment was linked to the mortgage.

As soon as you switched to a repayment, you put yourself into a situation you should have been in from the start, therefore the losses incurred are only calculated during the period before you switched.

The ombudsman has had to consider several unusual cases for paying compensation as people's circumstances change and there are some case studies on their website and in "Ombudsman News" which is published monthly on its website (see link on right).

The opinions expressed are those of the Consumers' Association and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.



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