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Friday, 6 October, 2000, 10:43 GMT 11:43 UK
Have you been caught in the endowment mortgage trap?
UK financial watchdogs have decided to step back from launching a full-scale review of mortgage selling.
The Financial Services Authority admits that a "significant" number of homeowners may have been sold endowment mortgages inappropriate to their needs. Up to six million policyholders are likely to find that when the time comes to cash in their mortgage after 25 years of paying premiums they will be left with a shortfall.
But not all the shortfall can be blamed on unscrupulous salespeople, the FSA says. Besides, many endowment policies have beaten forecasts. And a full-scale investigation would cost £5bn.
Is the FSA right to shy away from a more thorough probe? What are your experiences of mortgage advisers? Have you lost out to bad advice? If so, who should pay?
This debate is now closed. Your reaction:
David Miles (IFA), UK
The main reason these policies were sold was that they guaranteed a nice commission for the person selling them. In our case, they worked for the building society providing the mortgage. When we wished to extend our mortgage to make some home improvements, we were immediately offered a new endowment, and the salesperson became quite annoyed when we pointed out we had an option to increase our existing endowment, because this did not give her any extra commission.
Buying a house is one of the most important decisions of your life. Why people simply accept what a salesman tells them without trying to find things out for themselves I do not know.
It is a plain fact that many endowments were promoted and thus sold as the salesmen, often tied to one life office, could generate good commission to meet the targets set by their companies.
No one should expect to get advice for free, yet a sale on the basis of commission earned by an adviser is not the best advice. If you're concerned, get advice from a fee-based independent adviser.
If you can afford a house what are people crying about?
Endowment mortgages and interest rates are, to all intents and purposes, connected to the same piece of string. That is, if mortgage interest rates are low (which they are relatively speaking) then the return on the endowment is low too. In short you can't expect to have it both ways.
Perhaps the smart thing to do is to use the money saved from reduced interest payments to partially pay off an 'Australian' mortgage.
A supine reaction from the FSA, which is to be expected I suppose. Most of those who buy mortgages - especially their first mortgage - are not finance gurus, and the way in which salesmen sold products which it now transpires were manifestly more to their benefit than that of their customers, is a scandal. However, it would cost too much of the money they conned us out of for the insurance firms to review the caseload, so we'll all have to waste time and effort pursuing our cases individually.
I heard that 'advisors' are paid commission on each endowment policy they sell. At a building society the advisors would get commission for selling an endowment policy, but not for a repayment mortgage.
I have a repayment mortgage but am presently investing money in funds as the interest rates are pretty low at the moment. If this changes I have the option to pay of some of the loan with the funds and increase the monthly repayments. Maybe I'll be better off doing this, maybe not, but at least I have the freedom to make my own choice.
Those who gambled by taking out an endowment policy to pay off their mortgage should be treated just like any other gambler. They must pay up for themselves. Those who were more prudent should not have to pay for others' mistakes.
Those who claim they didn't understand that stock market investments are a gamble have just learnt an expensive lesson, just like those who were caught out when house prices went down a few years ago. I'm afraid I have no sympathy for any of these people.
What rubbish! Most endowments sold within the last 5 years are based on a 6% growth anyway, meaning that payments are already higher now, so there should be no surprises down the road. Further more, interest rates are bound to fluctuate over 25 years so they are still a good bet. Yes I took out an endowment, yes the chap made a lot of commission but no I am not upset about it.
Tanya Smithson, UK
When I took out a mortgage 3 years ago, my Building Society moved heaven and earth to try and get me to see their "financial adviser". Fortunately I can spot a greedy commission-earning rip-off shark a mile off, and anyway I am my own financial advisor. It's time punitive action was taken against this miss-selling. Fortunately this welcome bad publicity will mean that people won't touch endowment mortgages with a barge-pole anymore, and these people will have to crawl back from whence they came.
We've 2 endowment policies. One taken out in 1987 is well on course to pay the part of the mortgage it covers, and one taken out in 1989 which allegedly doesn't. We've received 2 letters within the space of 3 months stating that we'll be 10 thousand pounds down and another to saying we'll be 8 thousand pounds down at the end of the 25 years. The company in question has never supplied the information we've requested to explain how yearly bonuses are calculated. Now make sense of all that!
My financial advisor, first gave me 2 alternatives available at the time, suitable for a first time purchaser. A little known building society for the Payment Mortgage, and Nationwide Discounted Mortgage, with an endowment policy from her company. To top up, start a PEP as well. Then she changed companies and the PEPs got replaced with ISA and my endowment mortgage got moved to a new Mortgage Flexible Payment type. Transferred the PEP, started the ISA. So hopefully I have all bases covered... Best advice I got was many years ago was to start a long-term savings policy at a point I was living at home and earning money. Gave me a good 5 years start and acts as a safety blanket.
I have 10 years to run on my mortgage, I have sold my poor return policy and have invested in a ISA. To get enough to pay my mortgage I now need to invest 4 times the original monthly amount. Take my advice, stick it in an ISA and tell these arrogant insurers to take a running jump. If they stopped offering "incentives" to under-qualified, over zealous brokers I wouldn't be in this mess.
I had exactly the same experience as Dave Hay, in that I was heavily dissuaded from taking a repayment mortgage in favour of an endowment. I cannot see how endowments are good value when all of the first two years' premiums are used to pay charges. I've since switched my one-year old mortgage back to a repayment basis, but feel desperately sorry for those who are not able to do the same. Unfortunately, with such high commission rates on mortgage products, getting independent advice is not always easy.
In 1985 my wife and I were in our early twenties when we took out our endowment mortgage. We relied completely on the advice from the Building Society Manager. I truly believe he did not have our best interests at heart. He never mentioned the repayment mortgage. We only became aware of such a mortgage two years later when my brother-in-law took one out.
Had we known at the time the mount borrowed did not decrease over the years we most certainly would not have considered this option.
Graham Crawshaw, UK citizen living in US (temp)
When extending our mortgage approximately fifteen years ago we came under considerable pressure from our building society to convert to an endowment policy. Fortunately I read through the small print and realised that if the investments didn't realise their expected returns we could be left with a deficit on completion. I queried this with the branch assistant manager who thought that this " couldn't be right, some one at head office would have told us" but she agreed to check. She was quite surprised when she realised that she didn't know as much as she thought. I wonder how many couples she, and many others like her, had given bad advice to.
I was sold an endowment mortgage by a 'reputable' high street building society. When I eventually realised that it didn't work for me and wanted to change it they charged me £10,000 in redemption fees. I kept the endowment policy as an investment tool, but be warned, you are probably still paying invisible management and life assurance costs as part of this! Come on PIA, what are you scared of?
Dave Hay, UK
We were sold our endowment policy
through the estate agent's financial
advisor. We feel that they were after
a quick sale and so only told us about
the endowment. How stupid we were
not to shop around, or were we?? At the
time we thought it was an excellent
policy, a lump sum to pay the mortgage
and a lump sum for us and weren't told
any different. Had we know that
there was a risk, no way would we
have taken an endowment.
Neil Edwards, UK
When I came to buy my low-cost endowment I was told that it was not 'guaranteed' to pay off my mortgage but that past trends indicated that it should. I imagine most people were told the same story. If that is the case then the modest surplus they might have expected simply hasn't happened and they should accept that their 'investment-based' mortgage hasn't done as well as they had hoped. Will they whinge when their FTSE-tracker ISAs don't make them rich too?
My endowment hasn't had chance to underperform as I took it out just under a year ago. The quoted rates of growth were 4, 6 and 8% and we based all assumptions on 6% growth. I know it's a chance, but it's a chance I'm prepared to take.
Most endowments are for 25 years, and since the ones in question were entered into within the last 10 years or so, it gives plenty of time to rectify payments. Plus most are initially projected over the value needed, reducing the deficit. If projections were based on rates out of line with rates at the time, this is bad. Otherwise, I don't see why compensation should be given if people were warned that rates can move.
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