Endowments Shortfall
During the 1980s and 1990s, millions of mortgage applicants were advised by mortgage brokers to set up endowment policies to cover the capital element of their interest only mortgages, on the assumption that investments would continue to rise at similar rates as had previously been seen.
Endowments however are considered to be a fairly high risk product as they are reliant on stock market growth. Without sufficient rises, the policy is unlikely to meet its investment target and so will not be enough to pay off the original loan at the end of term.
Today it is thought that there could have been as many as five million endowments sold that would not meet their target amount, thus leaving a shortfall to be met by the home-owner. A large number of these cases have since been resolved when the client remortgage up or took alternative or additional investments however, there are still a great many people relying on insufficient endowment investments to pay off their mortgages.
Endowments and insurance
Insurance companies have been aware of the growing problem for some years and they are required by their regulators to review all their endowment policies regularly and write to all endowment holders every two years to ensure that they are aware of any potential shortfall.
Letters from the insurers will be one of three types:
- Green - when the policy is on track at the moment to meet its target investment amount at maturity
- Amber - when there is a significant risk that the policy will meet its target level.
- Red - when there is a high risk that the policy will fail to meet its target amount.
The insurance companies that provide these policies are not allowed to give advice to their policyholders and generally, it is not considered to be a good idea to simply pay more money into an endowment policy to try and help to get it back on track.
It can also be a difficult decision to make whether to cash in the policy as in the earlier years, surrender penalties may mean that amount due back could be less than the amount paid in. There are however a number of options for anyone in this situation and there may even be compensation available for those who were mis-sold an endowment.
If you would like independent advice about the best course of action to take in your circumstances, please complete a Mortgage Enquiry Form and we will arrange for one of our specialist mortgage advisers to contact you. Alternatively, you can call us on 0844 776 0756.
