Recent government and independent statistics agree that more than 80% of the 8.5 million Endowment Policies still in force are in danger of falling short of the sum required to pay off the policyholder's mortgage. This unprecedented crisis in the financial services industry has left UK homeowners with a collective shortfall exceeding £40 billion, searching for answers and action.
The full extent of the situation has only recently become evident and experts expect that diminishing returns from Endowment Policies will likely increase the deficit faced by the nations homeowners. The average shortfall amount has rapidly increased from £2,000 in 2002 to more than £5,000 today, with shortfalls for a £50,000 Mortgage averaging at £14,000. The reality is that if you have an Endowment Mortgage then you are likely to be affected by this, and the shortfall may cost you tens of thousands of pounds.
The fortunes of today’s policies are in sharp contrast to the large bonuses paid on Endowments maturing in the 1980’s and 1990’s, although both scenarios show the inherent risk and variable returns that the underlying investment in the stock market produces. Prior to the late 1980’s, policyholders enjoyed a guarantee from the Endowment Company; so long as they paid the premiums the policy would mature at a pre-established minimum value, regardless of the whether 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. The guarantee was fundamentally what made Endowments suitable for the majority of homeowners to use as a repayment vehicle for their Mortgage. Without the safety net guarantees provided, low-cost policies were simply investments with additional life cover that may or may not repay your Mortgage. In contrast the main alternative, Capital & Interest or Repayment Mortgages were guaranteed to repay your Mortgage, but were only deemed suitable in special circumstances, such a people with no family or dependants. Given that the aim of all homeowners is to own their own home, it is now being proven that the vast majority should have been advised to take a Repayment Mortgage instead
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 year’s premiums, together with the removal of guarantee and the inherent risk of investing in the stock market made Endowments a high cost and high risk method of buying your home. For these reasons, and when considering the importance of your home to your family, it is hardly surprising that Endowment Mortgages are now finally off the menu at every Lender and IFA in the country.
These facts were very rarely explained in detail by the advisor, and the alternative Repayment Mortgage was generally ignored altogether. Fuelled by the higher commissions and corporate greed, rather than representing the client’s best interest, many advisors recommendations were unsuitable and failed to comply with the rules established to protect the homeowner.
The Regulator, the Financial Services Authority (FSA), having recognised the severity of the crisis ordered all policy providers to rectify the situation. If a homeowner can prove that they were given unsuitable advice and they have lost out financially as a result, then they have a valid complaint and will be compensated in order to put them in the same position as if they had not been advised to take the policy in the first place. The average amount of compensation paid is £3,000-£5,000, with compensation already awarded to ½ million homeowners.
You may have a case for compensation if ANY of the following apply:
· You believed that you were going to receive a cash lump sum at the end of your Mortgage
· You were not informed that your Endowment was linked to the stock market
· You may have chosen a Repayment Mortgage if you had been told of the possibility of a shortfall
· Your Mortgage continues into your retirement
· You were advised to cancel one Endowment in order to take out a new one
· You were a first time buyer when you took out the Mortgage
Email:
info@victoryclaims.co.uk
