By Ben Carter
Radio 4's Money Box
Investors face losing their homes
Hundreds of elderly people could face the prospect of having to sell their homes after an investment marketed as medium risk went badly wrong.
Some have lost as much as a quarter of million pounds after investing in geared traded endowment policies
The Financial Ombudsman Service has already upheld numerous complaints for mis-selling.
As a result a group of investors are taking legal action to try and get full compensation for their losses.
Endowments typically sit alongside a mortgage and are designed to pay it off but in these cases the gearing element means that money is borrowed for the investment - sometimes twice over, which with charges can wipe out any return the investment makes but the debt still has to be repaid.
Brenda Hudson invested in one of these policies in 2005 but by 2007 the plan was in "failure" stage and her current debt of over £170,000 is still growing with no means of repayment:
"The pressure is great, the bank has written to us and reminded us that we have considerable debt to them which they want repaying. Our fear is we shall be forced to sell our homes in order to get rid of our debt to the mortgage lenders."
Brenda's complaint for mis-selling is currently being assessed by the Financial Ombudsman Service. They have upheld many similar complaints about the same product. But the Ombudsman can only enforce a pay-out of £100,000 and the majority of claims are for more than that amount.
Their solicitor Gareth Fatchett is seeking compensation from Mint Financial Services who sold many of the plans. He says they have a good case:
"In the cases that I'm seeing the explanation of risk is down-played."
"The returns would have to be fantastical, they'd have to very big returns indeed to actually get a neutral position."
Mint Financial Services are now a part of the Intrinsic Group. Its communications manager, Ben Howell said:
"We take our responsibilities to our clients extremely seriously, and we will work with and accept the findings of the Ombudsman in all cases. However, as some of these are ongoing cases, we feel unable to comment further at this point."
The plans were created by Integrity Financial Solutions who went into liquidation in October 2009. They were part of the UK Integrity Group - their Chief Executive Iain Stamp told the programme that they had made the risks clear.
"I don't believe fantastical assumptions were made. The majority of investors are still enjoying returns from their investment."
He added that he thought the financial advisers who sold the plans should be the ones facing questions.
A marketing CD given to IFA's by Integrity showed an example where a client purchasing £388,000 of traded endowment policies would secure an initial commission of over £19,000 for their financial advisor.
Bank of Scotland who provided the borrowing for a number of investors issued a statement saying:
"We appreciate that some customers, all of whom received independent financial advice, are concerned about the performance of their product and the impact on their debt position.
Any customers who find they are in financial difficulties should let us know as soon a possible and we will consider their position sympathetically."
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