The Endowment Time Bomb Problem

In the 1980s and early 1990s endowments were popular – the stock market was performing well and in most cases it looked like the investment proceeds exceeded the target.

As stock market performance has declined and slowed to a more realistic level, lower returns mean that most endowments will not reach their target amount.

Customers were not always warned that their endowment depended on investment returns & did not understand that the endowment may be insufficient to repay their mortgage

Our experience in obtaining compensation highlights concerns over the suitability, affordability and your attitude to risk of mortgage endowments

The biggest problem was that salesmen received very high levels of commission for selling an endowment. They chose not to tell their customers about the risks, after all would you really have gambled with your house?

Most of the present generation of endowments are likely to fail

The Government has (through its financial services regulator, the Financial Services Authority (FSA)) now officially recognised that the sale of an endowment policy in order to repay a mortgage has turned out to be a scandal. As most of the present generation of mortgage endowments are likely to fail, this will leave millions of homeowners with a shortfall when the time comes to repay their mortgage.

This is in stark contrast to what most people were promised at the time-of-sale

The failure of mortgage endowment policies has resulted from the slump in global equities and the uncertain future of the world's economies, which has been caused by the low inflation, low growth and low interest rate environment favoured by politicians worldwide.

Reasons Why You May Be Entitled To Compensation

These are some of the reasons why the mortgage may not have been suitable for you:

• Other options for repaying the mortgage were not discussed fully with you;
• The adviser didn't explain the investment risks in endowments;
• The adviser didn't explain that an endowment policy gives a poor return if you cash it in early;
• The adviser didn't check you were comfortable with the risks that the amount you would get back depended on the performance of the policy;
• The adviser may have said the policy was guaranteed or would definitely pay off the mortgage;
• The sale didn't follow the rules - Your adviser should have made sure an endowment was the best way of repaying your mortgage depending on your financial circumstances at the time and your 'attitude to risk';
• The adviser didn't explain any fees and charges and how they affect the return you get on your savings;
• The adviser didn't complete a fact find during the sales process;
• Churning: Any endowment policy you held at the time your mortgage was recommended to you should have been used to back your loan. Any advisor who told you to cash in the endowment, and then sold you another one to replace it, was guilty of 'churning'. This is appalling advice and against FSA rules and we should be able to claim compensation.
• Payments into Retirement:
  • If your mortgage and endowment was set up to continue past your expected retirement age, your adviser should have checked that you would have enough income in retirement to continue to pay the mortgage and endowment premiums;
  • If this wasn't discussed or you were told not to worry because the endowment would pay off the mortgage before retirement we should be able to claim compensation.