Recent claims that endowment policies have been systematically mis-sold have sent shivers down the spines of home-owners who bought their properties with endowment-linked mortgages.

The fear about endowment schemes is that when interest rates are low, as they are now, many policies might not provide enough money to repay the mortgage at the end of the term, let alone produce any cash bonuses on top.

The main regulatory body, the Financial Services Authority, has now dismissed claims of mis-selling, saying concern over the risk element of endowments is fair, but that this does not necessarily mean they were unsuitable to be sold to the customer.

The authority says the overwhelming majority of endowment policies pay out adequately and that there is no question of their being banned.

"Useless"

Last month, Paul Flynn - Labour MP for Newport West - called for a government inquiry, saying millions of people had been sold "useless" polices.

He said mortage sellers were often more interested in collecting hefty commissions than selling the most suitable product to their customers.

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

Endowment policies have also been criticised for being inflexible and carrying relatively high charges.

Code of conduct

But Sue Anderson of the Council of Mortgage Lenders said it was not correct to say that 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 said lenders should make any potential risks clear to customers and that her organisation had drawn up a code of conduct on how to do this.

There are already government plans in the pipeline to review the mortgage industry as a whole, and the Financial Services Authority is carrying out checks on past selling techniques.

Mortgage lending is subject to a voluntary code of conduct, while other financial advice is subject to strict regulation under the Financial Services Act