Endowment mortgages

More than two million people with endowment mortgages are facing a shortfall, the Financial Services Authority (FSA) has said.

 

The average endowment shortfall per household is £7,200, the FSA added. However, about 700,000 people had still done nothing about their endowment shortfall.

 

Many people were told their endowments were guaranteed to pay off their mortgages, but these promises have frequently fallen well short.

 

Increasingly, consumers have been seeking compensation for mis-selling from endowment mortgage providers.

 

Last month the financial ombudsman service - which adjudicates on endowment mis-selling - revealed that it was receiving 1,300 complaints a week about endowment mortgages, 34 per cent more than a year ago, and up from 300 a week three years ago.

 

 

Stakeholder Response: Association of British Insurers

 

 

 

Chris Kenny, the ABI's director of life and pensions, said: "The efforts of the industry and others appear to be paying off. Many more people have taken action to address the possibility of a shortfall. We are pleased that the recent improvements in communication with customers have been successful.

 

"We are not complacent about standards of complaints handling, although a clear majority of insurers have made good progress and provide a good service. We will continue to work with members, through our Complaints Benchmarking Exercise, to make further improvements so that all customer complaints are handled quickly, fairly and sensitively."

 

The ABI has published a new briefing paper on endowment mortgages, with up-to-date information on the numbers of policies in force.

 

Key facts include:

 

•  The number of endowment policies in force fell to 7.5 million by March 2005, down from nearly 11 million in 2001.

 

•  2.2 million households have an endowment policy that is still related to their mortgage and are facing a shortfall at the average rate. 69 per cent of these have taken action to address their situation and another 14 per cent are planning to do so.

 

•  The total shortfall for those customers with an endowment still being used to pay for their mortgage is £16bn. In 2004, the Treasury Select Committee estimated the total endowment mortgage shortfall at £40bn.

 

As many people move house and property prices continue to rise, many savers have been able to re-structure their finances, switch to a repayment mortgage or build up other savings in order to avert the problem of a shortfall. In addition, many customers continue to receive the benefit of lower interest rates in lower monthly payments on their interest only mortgage.

 

 

Stakeholder Response: The Council of Mortgage Lenders

 

 

A CML spokesman said: "The CML welcomes the attempts that the FSA has made to identify the scale of the remaining number of households who have not yet taken steps to address their endowment mortgage shortfalls.  It is encouraging that the vast majority now seem aware of the issue and are taking steps to address it.

 

"We are working with our members and with other trade associations to seek to ensure that endowment mortgage holders get the information they need to make an informed choice about how to deal with any shortfall.  In particular, we have offered to co-ordinate efforts to identify and target those remaining consumers who have not yet addressed the issue of shortfalls with advice on how to proceed."

 

Stakeholder Response: Which?

 

 

In response to FSA research that shows 2 million households will suffer endowment shortfalls over the next two decades, Which? is urging people to take action without delay.

 

Hundreds of thousands of people have already missed their deadline to complain. If those who feel they have a case for complaint but haven’t yet done so don’t move fast, they may also miss their chance.

 

Louise Hanson, head of campaigns at Which?, said: "Too many people who believe they have cause for complaint put off sorting out their endowment problems until it’s too late. 

 

"If you miss the deadline, you miss your chance for compensation - it’s as simple as that. Make time today and visit the Which? endowment action website."