Hundreds of thousands of homebuyers could be forced to sell their house as they battle with endowment shortfalls of tens of thousands of pounds.
Families could be left with just a quarter of what they expected when they signed up for the initiative, with payouts plummeting from £100,000 plus in previous years to £35,000 – or £24,600 in some cases.
The result is that many will be unable to provide sufficient funds to pay off the mortgage, leaving them with no choice but to sell their homes.
How did this happen?
During the housing and stock market boom in the 1980s, speculators in these industries made very high predictions of investment growth in endowment savings plans.
However, by the mid-1990s, the realisation dawned that these expectations were not realistic. As such, the rise and fall of endowment mortgages has been a feature of one of the most notorious mis-selling scandals in the last few decades.
Phillip Bray, of independent financial advisors Investment Sense, said: “The original growth estimates on these policies were simply way too optimistic, while the funds just didn’t perform as expected.
“In the coming years we’ll see just how bad the endowment mortgages mis-selling scandal is.”
Researcher BDRC Continental estimates that 1.1 million homebuyers with an ‘interest-only’ mortgage, including endowment mortgages, face a shortfall.
These are financial products which combine life insurance and investment growth in one package, and were most commonly used as a way of repaying a mortgage.
An endowment is a monthly savings plan, usually invested in shares and property, designed to pay off the home loan at the end of the term. Borrowed capital is not repaid during the term of the loan.
Homebuyers were told that these policies might bring in a lump sum large enough to repay the loan in full at the end of the pre-agreed period, usually 25 years. However, there is no guarantee the endowment will pay off the mortgage.