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The BBC's Andrew Verity
"Many were never told about the risks"
 real 28k

Thursday, 4 November, 1999, 10:00 GMT
Endowment holders 'may win payouts'
Thousands of home-buyers still take out endowments

Thousands of homeowners who were sold endowment mortgages without being warned of the risks are being told they may be entitled to compensation.

The Personal Investment Authority ombudsman says people affected are those whose endowment policy has not grown fast enough to pay off their home loan.

They may be able to claim all their savings back - plus interest.

Ombudsman Tony Holland has been investigating complaints from homeowners.

Tony Holland: endowments are riskier
They say they were not alerted when they took out the endowment that the policy may not cover the loan.

Mr Holland said: "It's intrinsically more risky than having a capital repayment mortgage.

"If it's not explained to them, there may have been a mis-sale, which could give rise to compensation.

"And the compensation effectively is recovery of the premiums paid, plus interest."

Thousands of new mortgages are still sold with an endowment policy, even though experts now consider they are no longer good value.

Endowment mortgage-holders do not repay the home loan directly, only the interest. Instead, they pay regularly into an investment fund which, in theory, will provide a lump sum to pay off their loan at the end of the term.

Endowments became very popular in the 1980s, when interest rates were high and it was thought they would always cover the mortgage.

But since then, with interest rates consistently below 8%, repayment mortgages are thought to be more efficient.

Appeal for regulation

Only two days ago, a report by the Institute of Actuaries said endowments which run for 15 years or less are unlikely to be good value.

The ombudsman has been investigating complaints
Even some policies which run for 25 years should be avoided if the loan has to be paid off early, it said.

The ombudsman's report came as the Consumers' Association urged the government to introduce statutory regulations to cover mortgage advice.

The association said regulations were needed to address gaps in the system and avoid endowment "bias" by salesmen.

It said many borrowers were still being given outdated and misleading advice about endowment mortgages.

Endowments typically generate seven times more commission for salesmen than repayment policies, it said.

The association called on mortgage lenders still offering endowment mortgages to urgently review their position and publish details of how many such policies lapsed after four years.

It also said it wanted to see the Financial Services Authority update guidelines for mortgage providers on the pros and cons of repayment and endowment policies "so they no longer have any excuse to give outdated and misleading advice".

Warning for new borrowers

The association's latest Which? magazine says that 40% of new mortgage borrowers are still being sold endowment mortgages.

Neil Walkling, principal researcher at Which?, said: "Endowment mortgages are no longer a sensible option for new borrowers.

"Anyone with an endowment already should certainly stick with it but new borrowers should steer clear of these risky, inflexible and old-fashioned products."

Earlier this week, Trade and Industry Secretary Stephen Byers said an investigation could be launched into endowment mortgages, which could be as large as the inquiry into pensions mis-selling.

Mortgage lenders have denied widespread endowments mis-selling.

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See also:
20 Oct 99 |  Your Money
A guide through the mortgage maze

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