Endowment mortgage shortfalls

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.

Endowments explained

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.

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Posted by: WarrenWilson Categories: Finance Tags: , , 7 Comments

7 Responses to Endowment mortgage shortfalls

  1. avatar Paul wright says:

    The government bailed out the banks after they made dodgy investments, so those companies that encouraged and mis-sold people on to endowment mortgages should,
    at least, cover the basic shortfall.

    • Yes I agree. I expected enough to pay off mortgage and also have a bonus for myself at the end . That is what they said 25 years ago. This week the second part of my endowment matured.Between them both I was £12,000 short. A lot of money to find when you shouldn’t have to.

    • avatar chris says:

      For my mis-sold endowment policy I got a measly £800 in compensation, which doesn’t go anywhere near the shortfall on a £16,000 mortgage. It was a real rip-off. I was told at the time that I would actually get a return higher than the amount I’d borrowed!

  2. avatar Martin says:

    The Halifax tried to sell me an endowment mortgage for my first home in 1990 as my request for a repayment arrangement was quote “old-fashioned”. However my parents had warned me not to play money games with your home and so I stuck to my guns and paid a whopping 8% interest rate (later to hit 15% with Mr Lamont!)Come on, stock market investments are clearly have a degree of risk and its no excuse to say I didn’t understand what you was doing!! I lost a packet in the internet boom of 2000 on shares but Im not blaming someone else, or saying I didn’t understand, for loosing money!

  3. avatar Mike Clements says:

    I think that people should not have buried their heads in the sand and thought everything was going to be okay. I had one of those mortgages, as soon as started getting the letters from the endowment insureance company I converted my mortgage to a repayment mortgage, still carried on paying the life assurance meaning that my mortgage will be paid off in 5 years time AND I will get a cash handout AS WELL fron the life assurance company AND if I do fall before them they will pay me out the original mortgage sum so I winwin though I prefer the first option.

  4. avatar Steve in Cambridgeshire says:

    Sadly, this is just another example of the shambolic state of financial services in the UK. The complete lack of consumer protection would be laughable if it weren’t so tragic. People are aghast at the proposed savings tax in Cyprus, where the government is taking 6-10% of people’s savings. Why doesn’t anyone say anything when the financial services take 75% of a person’s life savings here in the UK, while giving bonuses to those responsible? All perfectly legal, of course.

  5. avatar Pat says:

    I feel sufficient time has been given for endowment mortgage holders to plan for this. I did and did not expect to be bailed out.why should tax payers do it again?