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Tuesday, 21 December, 1999, 12:25 GMT
Endowment probe ruled out

New house Policies from the 1980s may not pay off the dream home


The Financial Services Authority has ruled out launching an investigation into allegations of mis-selling of endowment mortgages.

The Property Maze
The decision follows a year-long inquiry into the policies which have left many home buyers with too little money to pay off their mortgages.



Anyone who's offered one should run a mile
Paul Flynn MP

It will come as a relief to mortgage companies who feared an investigation similar to that into mis-sold pensions.

The FSA said there were no grounds for an in-depth investigation.

Howard Davies, FSA chairman, said: "On average, holders of mortgage endowments have enjoyed returns which mean they have fared at least as well as they would have done with a repayment mortgage."

But the FSA said its research into mortgage selling found poor record-keeping by lenders in half the cases examined and poor quality advice in about a third of cases.

"These poor practices must stop and standards must improve markedly," Mr Davies said.

The FSA has instructed chief executives of insurance companies which administer endowment policies to explain and justify the basis on which they sell mortgage endowments and report back by 31 January.

There has been increasingly strong criticism of endowment mortgages in recent months, mostly of those bought in the 1980s.

The claim is that, inspired by high commissions on endowments, sellers talked many home-buyers into taking out policies which now look set to leave them short of the amount needed to pay off the sum borrowed.


Couple looking at homes for sale Endowment sales have been going out of fashion
Since those days there has been a sharp fall in the number of endowment mortgages being taken out - in 1991 they accounted for 78% of all mortgages taken out, now it is just 32%.

Endowment mortgage borrowers pay only the interest on their home loan each month.

To repay the loan principal, borrowers take out an attached endowment investment policy which sees regular premiums contributed.

Premiums raised for 500,000

The idea is that when the policy matures the proceeds are enough to repay the loan.

Over the last decade financial institutions offering this combined mortgage and investment option projected that returns from an endowment policy would be more than enough to pay off the home loan and leave borrowers with a nice bonus on top.

But as interest rates declined markedly during the 1990s, these optimistic predictions have fallen well short of the mark and in many cases left borrowers with a shortfall to be paid, rather than a surplus to be found.

Good for millionaires

The Institute of Actuaries says endowment returns have fallen from around 13% in the 1970s to around 5% in the 1990's.

It is reported that about 500,000 people have been asked to increase their premiums to ensure that their policy is large enough to pay off their loan.

Paul Flynn MP, who has campaigned for a full-blown inquiry, said that the campaign had worked in reducing the take-up of policies which may not repay a home loan.

"Anyone who's offered one should run a mile. They are a risk, a gamble...they are good only for millionaires who like a gamble," he said.

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See also:
04 Nov 99 |  Business
Endowment holders 'may win payouts'
10 Aug 99 |  Your Money
Endowment mis-selling claims dismissed
27 Jul 99 |  Your Money
Endowment mortgage scandal claim
02 Mar 99 |  Your Money
Mis-selling fears over endowment mortgages

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