MP Paul Flynn: Endowments are an investment scandal

Paul Flynn, MP for Newport West, says mortage sellers are often more interested in collecting hefty commission than selling the correct product to their customers.

He is urging the government to consider outlawing endowment mortgages, and paying compensation to those who suffered financial losses by buying them.

He said: "They are useless to virtually everybody in the past 10 years who might have had one, but they are very valuable to the person who is selling them because they pay up to five times the amount of commission you get otherwise."

'A bunch of Arthur Daley's

On BBC Radio 4's Today programme, the MP added: "Possibly two million people have been mis-sold mortgages. We have a got a scandal on the scale of the pensions mis-selling scandal.

Paul Flynn explains why he thinks endowment mortgages should be scrapped

"The Consumers' Association have described the mortgage industry, these very respectable high street banks, the household names insurance society, as a bunch of Arthur Daleys selling us dodgy deals and they are absolutely right."

Mr Flynn wants the Treasury to launch an inquiry, create new selling regulations and compensate those people whom he claims have been mis-sold mortgages.

'Public anger'

Mr Flynn said the government will have to act in response to the huge amount of "public anger when people realise the mortgage they bought in good faith is very poor value".

He added: "They are gamblers' mortgages and does anyone want to gamble with probably the most important investment, the biggest investment of their lives?

"No one knows what is going to happen in the stock exchange in a month's time. An endowment mortgage will be profitable if you know what is going to happen in the stock exchange and with interest rates in 20 to 30 years' time."

But Sue Anderson of the Council of Mortgage Lenders said it was not correct to say that all endowments were inappropriate.

"In many cases endowments have performed so well, that there really is no reason to believe that over the period they have been bought for they will not do their job," she said.

"When inflation is low, it may be more attractive to repay debt quickly - but the job the endowment is designed to do, is still achievable."

She agreed that lenders had to make any potential risks clear to customers and her organisation had drawn up a code of conduct on how to do this.

Review in pipeline

There are already government plans in the pipeline to review the mortgage industry as a whole.

Currently, mortgage lending is subject to a voluntary code of conduct, while other financial advice, for items like pensions and investments, is subject to strict regulation under the Financial Services Act.

Ministers are now considering introducing regulations on home lending for the first time.

Lenders are also being accused of not passing on rate cuts

They are concerned that borrowers are paying hundreds of pounds a year more than they should because banks and building societies sometimes fail to lower loan rates when the Bank of England cuts its base rate.

Even though there was a 0.25% base rate cut in June, most banks and building societies reduced rates by only 0.05% to 0.15%. They said they needed to maintain competitive savings rates.

Chancellor Gordon Brown may warn lenders to pass on base rate cuts - or face statutory regulation. He is preparing to issue a consultation document considering the options.

Lenders introduced a code of practice in February in a bid to stave off legislation, but complaints about the way borrowers are treated have continued to mount up.

The government review is also looking at clauses forcing home owners to take out uncompetitive insurance.

There are also concerns over the practice of locking borrowers into the variable rate for long periods after a fixed or discounted rate has ended - another move which can cost hundreds of pounds a year.

The Bank of England base rate has dropped 2.5% in a year, and now stands at 5%, its lowest for 30 years.