Frequently
Asked QuestionsPlease refer to
these common questions or ask our experienced team for further
information on how we can help you secure compensation of you
- What is an Endowment Mortgage?
- How does an Endowment Mortgage work?
- Why were endowments sold with mortgages?
- What is a shortfall?
- What is the scale of The Endowment Shortfall Crisis?
- I thought my Endowment Policy would repay my mortgage. How could this happen?
- I have an Endowment Mortgage. How do I know if I am affected?
- What is a Re-Projection Letter?
- What are the grounds for making a claim?
- How can Victory Claims help me?
- Is Victory Claims Ltd regulated and how secure are my private details?
- Can I make a claim on my own?
- How much compensation might I receive?
- How long does it take?
- Is there a deadline for complaining?
- What's the next step?
What is an Endowment Mortgage?
An Endowment Policy is an investment fund that provides combined life assurance and was commonly used as the repayment method for mortgages. Throughout the period before the 1990’s Endowment Policies generally produced good returns on maturity, fuelled by the steady rise of the stock market and other investments. Whilst there were many types of policies and providers, most policies were guaranteed to repay the loan whether or not the investments performed as expected. During the 1980’s low-cost policies became increasingly popular as they reduced the premiums that the homeowner needed to pay, at the cost of removing the protection of the guarantee previous generations had relied upon.
How does an Endowment Mortgage work?
A homeowner with an Endowment Mortgage pays a premium to the endowment company plus the interest on the loan to the lender until the Endowment Policy matures and repays the mortgage, usually after 25 years. The monthly premiums paid to the insurer are pooled together with other policyholder’s premiums and collectively invested in stocks and bonds. Although Endowment Policies were designed to repay the mortgage, they are not necessarily guaranteed to do so. The common alternative is to repay the capital and the interest each month, gradually reducing the outstanding loan until it is fully repaid. A Repayment Mortgage is guaranteed to repay the loan at the end of the term.
Why were endowments sold with mortgages?
Prior to the 1990’s the government promoted homeownership by providing tax relief on mortgage interest and endowment premiums, which made Endowment Mortgages a tax-efficient way to repay the mortgage. Properly structured, the endowment was designed not only to repay the mortgage but also give an additional lump sum or bonus at maturity. Most had guarantees that were very valuable, considering the importance of your home to your family. The eventual removal of tax relief on endowment premiums in the late 1980’s resulted in increasing costs and diminishing returns for the policyholder, although Endowment Mortgages continued to be promoted as the most suitable way to buy a home. Endowments had become ingrained in the advice culture for many IFA’s, Building Societies and other advisors, which coupled with the high commissions paid to the advisor appears to be the reason so many homeowners were sold an Endowment Mortgage. The sales commission, which often swallows up the entire first years premiums, together with the removal of tax relief and the inherent risk of investing in the stock market made endowments a high cost and high risk method of buying your home.
An endowment shortfall, or shortfall refers to a situation where the homeowner’s endowment policies are not expected to be sufficient to repay the mortgage at the end of the term. There are currently in excess of 6 million Endowment Policies that are in a shortfall position, which has led to this being referred to as The Endowment Shortfall Crisis. During the 1980’s and early 1990’s it was common for homeowner’s to receive an endowment surplus at the end of the term, as the performance of the stock market was strong during the early years of those policies.
What is the scale of The Endowment Shortfall Crisis?
It has already been proven that thousands of endowment policies taken out in the last 20 years were sold using practices that broke the rules the government established to protect the client. The severity of the situation is now becoming more apparent to the majority of the 8 million endowment policyholders who are waking up to the fact that the investment they took out with the intention of repaying their mortgage looks like it will fail to do so. Industry statistics show that the average Endowment Policy will fail to produce the expected return by around £5,000, which may come as a surprise to many homeowners who were not made aware that the endowment they started to repay the mortgage is not guaranteed to do so. A recent report by the Treasury Select Committee estimated that homeowners collectively face a shortfall of nearly ₤40 billion.
I thought my Endowment Policy would repay my mortgage. How could this happen?
Previous generations had relied on their endowment policies to repay the capital they borrowed to buy their homes. The guarantee meant that all the homeowner had to do was pay the interest to the bank and the premium to the endowment company, and in 20 or 25 years the endowment repaid the loan. The removal of the guarantee when low-cost endowments were introduced in the 80’s was not perceived to be a problem as most endowments maturing in that period produced bonuses, far exceeding the mortgage amount. The strong performance of endowments was due primarily to the spectacular profits that their fund managers made on the stock market, however the removal of the guarantee together with decline in the stock market have left many homeowners looking for answers and action.
I have an Endowment Mortgage. How do I know if I am affected?
Given that the FSA estimates that 80% of all Endowment Policies attached to a Mortgage are not on target to repay the loan, it is likely that if you have an Endowment Mortgage then you will be affected. The enormity of the situation coupled with the severity of people losing their homes, led the FSA to instruct all Endowment Policy Providers to issue a Re-Projection Letter to each policyholder. The Re-Projection Letter is effectively a revision of the original forecast that you were given when you took out the policy. If you have received a red or orange letter then your Endowment Policy is either unlikely, or at risk of falling short of its initial forecast and you should take action immediately to rectify your financial loss.
What is a Re-Projection Letter?
An Endowment Projection is an estimate or forecast of the final cash value of the endowment at maturity. When you took out the policy, the advisor may have used an Endowment Projection to illustrate how they expected the policy to perform. Almost exclusively the initial projection would have exceeded the amount of your Mortgage. As the premiums paid are invested in stock market investments the projection that you received when you took out the policy was based upon investment analysts forecast of the future performance of the market, which was often justified by its previously strong growth.
Endowment Policy holders are now sent
updated projections of their policy's likely future worth at
maturity on a regular basis. These projections are based upon
the endowment's current value and a range of the most likely
future average stock market returns given the current long-term
economic conditions, as determined by FSA. In short, if your
policy has to grow at least 8% p.a. to repay your mortgage then
you are at severe risk that you will have shortfall at the end
of your mortgage term and would receive a Red Re-Projection
Letter. An amber letter indicates that your policy has to grow
6% or more and you are at risk of having a shortfall, and a
green letter indicates that a growth rate of just 4% will be
good enough to match the initial projected amount. Given that
the FSA forecasts returns on equity investments will remain low
in the long-term, which is in sharp contrast to the high
expectations when policies were started, many millions of
homeowners have received red or amber letters and should take
professional advise.
What are the grounds for making a claim?
In order to make a claim, your policy must be in shortfall. If your Re-Projection Letter indicates that your policy is not on target to repay your Mortgage then we will determine whether the policy was suitable and complied in full with the rules of the Regulator. Please visit the Making a Claim section or Contact one of our Claim Assessors for who will determine whether you have grounds for a claim.
How can Victory Claims help me?
Victory Claims Ltd helps homeowners compile and pursue complaints by exhaustively investigating the sales methods used by the advisor at the time the endowment was sold to them and constructing a case based on this detailed information. Once we have assessed your case, we lodge a written complaint on your behalf that comprehensively addresses the specific grounds. We ensure that your complaint is pursued with vigour and professionalism, in order to increase the speed and likelihood of a successful compensation award. Our knowledge of the process and experience in dealing with the Endowment Companies and the Regulator helps to get our clients complaints heard and dealt with quickly and satisfactorily. We pursue all complaints to conclusion by driving the process with continual monitoring of the work by the Endowment Company’s claims team, ensuring that they comply with the regulators deadlines and answering any questions raised immediately. Finally we make sure that the offer satisfies the guidelines established by the Financial Ombudsman Service, in order that you are fully compensated for your financial loss.
Is Victory Claims Ltd regulated and how secure are my
private details?
Yes. Victory Claims Ltd is authorised by the Ministry
of Justice to provide regulated claims management services.
Our registration is recorded on
www.claimsmanagement.gov.uk. We are
also registered with the Information Commissioner as a Data
Controller. We handle your personal details securely and
confidentially under the Data Protection. For more details
please refer to our
compliance fact sheet.
As an alternative to using our professional services to assist you in securing compensation, you may choose to proceed with your claim yourself, or with another firm without using our services. To be successful in claiming, you will need to prove that the insurer or adviser did not comply with the specific selling rules relating to the sale of your policy. In many cases, individuals may not know what the rules were at the point of sale and whether they were correctly applied by the advisor. If you decide to undertake the claim yourself and build a strong case of mis-selling against your advisor and the suitability of the product, you may find that this works relatively simply for you and you receive compensation. In other circumstances where a favourable response is not received, you should maintain the pressure on your advisor and if your claim is initially rejected or responsibility denied, you have the right to refer your claim to the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS). Both services are available at no cost to you, however it will involve time and communication costs to ensure that the correct procedures are followed. You can expect your initial claim to take between 2-6 months and further 6-18 months should you refer the matter to the FOS and 6-12 months with the FSCS, although these timeframes depend on the volume of work at the responding party.
These options are available to all endowment policyholders and many have secured compensation directly without using our services, or that of another Claims Mediation Specialist, in the same way that some people successfully defend themselves in court without using the services of a solicitor. However, policyholders using the services of Victory Claims Ltd have commented that they would not have known where to start their complaints and vitally, that they would have abandoned their complaints at the first hurdle in the absence of advice we provide which is grounded in our experience of the claims process. We believe that our explicit knowledge of the claims process is the major benefit of utilising our services.
How much compensation might I receive?
The FSA has established clear guidelines for endowment companies to assist them in calculating the amount of compensation that is due to be paid in each case. The general principle that the FSA has applied enables the homeowner to receive compensation equal to the amount of the financial loss, in order that they may be in the same position as if they have not been advised to take out the endowment policy in the first place. This calculation involves, comparing the performance of the Endowment Mortgage against the main alternative, the Repayment Mortgage. The average level of compensation already paid by the insurers is ₤3,000-5,000, although the actual amount of compensation varies depending upon individual circumstances.
The FSA guidelines state that an endowment policy provider must respond to a complaint received from a policyholder within 8 weeks. The insurer must detail the progress and the likely time frame for resolution. Due to the numbers involved, and the subsequent amount of complaints being received by the insurers, it is usual that a complaint will take at least six months for an insurer to conclude. We believe that a professionally prepared complaint that addresses the specific grounds for compensation will be prioritised by the claims handling team and result in a speedier resolution of your case.
Are you entitled to claim?
Call 0800 011 2510
Is there a deadline for complaining?
The FSA has outlined rules that allow endowment companies to time limit complaints. The rules are complicated but in most cases the deadline is 36 months after receiving the Re-Projection Letter. The FSA is keen to communicate to homeowners that if they feel that they have a valid claim that they act as soon as possible. Waiting until the policy matures is not an option as the Endowment Company will not be obliged to offer any kind of recompense and you will have to pay the shortfall out of your savings. If you have received a RED letter your policy very unlikely to be sufficient to repay your Mortgage and the FSA advises that you take action immediately to rectify the situation. Our Claims Assessment Team are able evaluate whether you have case and comply with these time constraints.
If you have an Endowment Policy that is not on track to repay your Mortgage you need to take action immediately. The lender owns your home until you repay the outstanding balance and will become their property at the end of the term unless you repay the loan in full. Unless you have other investments and savings you may risk losing your home, and could still be liable for any remaining debt. Regardless of whether you have savings or not, you need to act now as you have been, and are likely to continue to be financially disadvantaged if you continue to use an Endowment Policy to repay your Mortgage.
If the financial loss you have suffered is due to the deficiencies in the advice you received then you have a case to pursue the advisor for compensation under the Regulators Rules. Victory Claims Ltd will assist you in every aspect of your compliant, from initial assessment of the grounds, compilation of documentation, continually chasing the complaint through to a successful and satisfactory compensation award.
If you have an Endowment Policy that is not on track to repay your Mortgage and you feel that the advice you received has led to financial loss then you should Contact our Claims Assessment Team who will be happy guide you through the claims process.
