Endowment Policies Leave Nine Out Of Ten Borrowers With Shortfall

[cashinmattress]

Endowment policies leave nine out of ten borrowers with shortfall

THE falling value of many with-profits endowment policies will leave nearly nine out of ten mortgage endowment borrowers unable to pay their home loan at the end of the 25-year term, according to the latest figures from the Association of British Insurers.

Scottish Widows last week joined Standard Life in announcing falling returns from its with-profit policies. The payout on a £50 per month 25-year mortgage endowment has fallen £2,569 to £27,525. This compares with £32,932 at Standard Life, which has slashed returns by up to 13 per cent.

Insurers claim the reduction in payouts reflects the weak stockmarkets, and argue their contracts have performed better than many investments directly linked to equities.

Critics counter that the charges on many of these policies are high, and their reliance on "fixed interest" investments will hamper future growth.

With-profit personal pension and bondholders have been similarly hit. Scottish Widows' retirement savers will pick up £71,186 after paying £200 monthly for 20 years, down £9,220. And a £10,000 investment ten years ago in a with-profit bond is now worth £11,612, compared with £12,522 last year.

So if you are one of the four million mortgage endowment holders with a sinking feeling in the bottom of your stomach as you read your annual statement, what should you do?

Your first priority is to make sure your mortgage can be paid off at the end of the term. There are a variety of options. You could speak to your lender about reducing your reliance on the endowment.

If you have some spare cash, you should pay off part of the loan, provided there are no onerous early redemption penalties, to the point where the endowment will cover it. Alternatively you could switch part of the debt to a repayment loan, which effectively does the same thing. It reduces your repayments as you go along.

If your endowment seems beyond rescue, you could consider surrendering the contract now and cutting your losses. Use whatever the policy produces to reduce your loan and switch the remaining debt to a repayment mortgage.

But do not simply abandon your policy without careful consideration or taking advice. There will be hefty early redemption penalties. Some of these contracts are better than others, and worth keeping. You could lose more by walking away.

Pension and bondholders may also want to consider their options in the light of their investment's recent performance.

With-profits can be a valid part of a varied portfolio of planning tools, but few investment advisers any longer recommend that they should be relied upon exclusively.

If you currently have all your eggs in the with-profits basket, it can make sense to diversify. But moving money out can be expensive. Many companies charge penalties, and Standard Life has announced it has increased exit penalties by up to 30 per cent.

Finally, before making any drastic move, investors should remember that many of these contracts include valuable guarantees and life insurance. The most attractive are guaranteed annuity terms, which can boost the value of a pension. But many contracts also include guaranteed annual growth rates.

This should not be surrendered lightly in today's low interest rate environment.

Endowment, interest only mortgages. These are a scam, designed to lure in the punters, and it sure worked out well for the suits.

I would personally categorize these things as a moral hazard, and they really played a big part in the crazy HPI in the last decade.

Too bad the moneys all gone, and only debt remains.

There are going to be MILLIONS of people out on their collective homeless and broke asses and begging by the time this tragedy plays out.

[buyhighselllow]

Endowment policies leave nine out of ten borrowers with shortfall

Endowment, interest only mortgages. These are a scam, designed to lure in the punters, and it sure worked out well for the suits.

I would personally categorize these things as a moral hazard, and they really played a big part in the crazy HPI in the last decade.

Too bad the moneys all gone, and only debt remains.

There are going to be MILLIONS of people out on their collective homeless and broke asses and begging by the time this tragedy plays out.

I used mathematics and a spreadsheet back when "everyone" was buying these (now failed) products to avoid this trap.

These products really were pathetic, just saving the endowment premiums into a savings account compounded over 25 years would pay off the debt (but you took on the risk of the stock market when you went with the endowment).

It was obvious at the time that that their sole purpose was to buy Porsches for financial advisors and bankers.

Fortunately for the suits, media studies is considered as valid as A-level as maths (and a lot easier to get an A in, so you'd be mug to ignore your school as they coach you towards innumeracy), so there's little chance that the majority of people will avoid similar Porsche purchasing schemes in the future.

[tomwatkins]

I remember somebody trying to flog me one way back when in the 70's. They were all the rage then. He said "now if we project the returns at even a "modest" 8% you will have a cash pot the same as the mortgage you have paid off". I remember saying "a modest 8%-what f@ckin planet are you on?" Or words appropriate at the time. Don't think "what planet" was the vogue back then. My mortgage was 8 grand-seemed like a freakin millstone back then. Scared me sh!tless at the time.

[porca misèria]

I remember somebody trying to flog me one way back when in the 70's. They were all the rage then. He said "now if we project the returns at even a "modest" 8% you will have a cash pot the same as the mortgage you have paid off". I remember saying "a modest 8%-what f@ckin planet are you on?" Or words appropriate at the time. Don't think "what planet" was the vogue back then. My mortgage was 8 grand-seemed like a freakin millstone back then. Scared me sh!tless at the time.

In the 70s, 8% would've been a big loss against double-digit inflation. I rather think the £20 or £30 I was able to put in my first savings account[1] earned more interest than that.

[1] Until my first summer job at age 16, when I earned something in the region of £100 and felt so rich I went and bought a motorbike.

[Bloo Loo]

I had to cash out my "lo-cost" endowment early on. in spite of paying in for nearly two years, it had no value whatsoever.

the £2000 clearly went in commissions.

course, had that up front commission been invested, maybe some of the full term products wouldnt have failed.

[papag]

Mine comes to an end next year after paying £19. 90p for 25 years I will get at today's valuation £8102 the projected sum was to pay off a mortgage debt of 14000 , This from the great company that has just spent millions on a name change :angry:

[deflation]

I used mathematics and a spreadsheet back when "everyone" was buying these (now failed) products to avoid this trap.

These products really were pathetic, just saving the endowment premiums into a savings account compounded over 25 years would pay off the debt (but you took on the risk of the stock market when you went with the endowment).

What about the requirement for life cover on a mortgage?

If you factor this in as well the one I have will still give back more than I paid in, allowing for compound interest, just about! Granted, it will be nowhere near the 'expected' (in some cases, 'promised') growth mentioned when I took it out. In 1988, before the date where the regulations over mis-selling apply, unfortunately.

[deflation]

Mine comes to an end next year after paying £19. 90p for 25 years I will get at today's valuation £8102 the projected sum was to pay off a mortgage debt of 14000 , This from the great company that has just spent millions on a name change :angry:

But you only paid in £6k!

I'm with that lot now. Went General Accident>Commercial and General Union>Commercial Norwich and General Union>Norwich Union>Aviva.

Incidentally, I'm getting a cheque later in the year, something to do with reattribution of inherited estates of CGNU Life and CULAC. You have to vote YES to get any money.

[laurejon]

Mine comes to an end next year after paying £19. 90p for 25 years I will get at today's valuation £8102 the projected sum was to pay off a mortgage debt of 14000 , This from the great company that has just spent millions on a name change :angry:

Cheers the boys in the City will thank you for your 25years of loyal patronage. Keep voting Labour!! The working classes friend.

[Patfig]

Cheers the boys in the City will thank you for your 25years of loyal patronage. Keep voting Labour!! The working classes friend.

The wee boy with the bottle looks like a nice little fella, but who's the gimp?

[interestrateripoff]

I had to cash out my "lo-cost" endowment early on. in spite of paying in for nearly two years, it had no value whatsoever.

the £2000 clearly went in commissions.

course, had that up front commission been invested, maybe some of the full term products wouldnt have failed.

I started with an endowment, lasted for all of two years as soon as interest rates came down I switched to a repayment mortgage.

The nice people that organised it did very well out of it, as it was mostly commission I seemed to be paying. I had toyed with the idea about just paying it into a savings account but I didn't know if that would please the bank or not.

[crouch]

Endowment policies leave nine out of ten borrowers with shortfall

Endowment, interest only mortgages. These are a scam, designed to lure in the punters, and it sure worked out well for the suits.

I would personally categorize these things as a moral hazard, and they really played a big part in the crazy HPI in the last decade.

Too bad the moneys all gone, and only debt remains.

There are going to be MILLIONS of people out on their collective homeless and broke asses and begging by the time this tragedy plays out.

I was one of the lucky ones. I got nearly £40K just under two years ago from a low cost endowment that was to pay off a mortgage of £28K. The mortgage had already been paid off anyway by that time so I didn't need the money. In fact looking at the tables some of the smaller companies were far better performers than the larger and some returned sums far higher than I received.

[interestrateripoff]

So what's the average shortfall?

With all of these coming to an end how many will need a loan or mortgage to cover the shortfall? A nice little earner coming for the banks?

Luckily they aren't rationing money.

[papag]

So what's the average shortfall?

With all of these coming to an end how many will need a loan or mortgage to cover the shortfall? A nice little earner coming for the banks?

Luckily they aren't rationing money.

Dont think it will be that high, in my case after moving home a few times i just kept the endowment part of the mortgage on as a insurance policy and looking forward to a nice payment after 25 years, would have thought many have done the same or cashed them in as they have had very bad press for years.

[porca misèria]

Mine comes to an end next year after paying £19. 90p for 25 years I will get at today's valuation £8102 the projected sum was to pay off a mortgage debt of 14000 , This from the great company that has just spent millions on a name change :angry:

Puts a bit of perspective on the story. A huge shortfall in percentage terms, but a trivial cash amount ... and I expect there are many like you.

Maybe it's with-profits and that £8102 excludes some final bonus?

[Stay Beautiful]

i had an endowment when i bought in 1999 switched it in 03 or maybe 04 i think i would have got back 30% but the provider had floated so i got some free shares which i cashed in straight away, ended up only about 20% down off my premiums. Thinkin back, i got this mortgage so easy, 2 years acounts that i had written up on double entry paper. This was done through a mortgage broker. A couple of years ago one of this mortgage brokers associates was jailed for a fair while for ripping off anybody who would listen to his claims of financial Utopia through a one way bet from Financial Invesment Vechile's. Oh dear.................

[Guest happy?]

I used mathematics and a spreadsheet back when "everyone" was buying these (now failed) products to avoid this trap.

These products really were pathetic, just saving the endowment premiums into a savings account compounded over 25 years would pay off the debt (but you took on the risk of the stock market when you went with the endowment).

It was obvious at the time that that their sole purpose was to buy Porsches for financial advisors and bankers.

Fortunately for the suits, media studies is considered as valid as A-level as maths (and a lot easier to get an A in, so you'd be mug to ignore your school as they coach you towards innumeracy), so there's little chance that the majority of people will avoid similar Porsche purchasing schemes in the future.

And yet I studied media studies and avoided endowments for the same reason and using the same techniques as you. As far as I can figure-out the banking crisis has mostly been caused by some very clever mathematicians whose models proved hopelessly inadequate when compared with reality.

I knew their models wouldn't work because my training in media studies required me to evaluate a number of critical approaches to a particular problem/scenario whereas their focus on their pet theory blinded them to the oncoming train wreck.

[winkie]

Mine did OK £25pm gross with tax relief over 25 years with profits full policy....but it was taken out early 1980s....how times have changed.

[papag]

Puts a bit of perspective on the story. A huge shortfall in percentage terms, but a trivial cash amount ... and I expect there are many like you.

Maybe it's with-profits and that £8102 excludes some final bonus?

Nope that's with the final bonus there is a pot of money that goes to compensating shortfalls from NU but the guy I spoke to couldn't give the exact figure but estimated it at around £500 but it isn't guaranteed

Edited August 23, 2009 by papag

[Freeholder]

Like most investment products these were a gamble. They only made sence at all if you needed the life insurance element. The good thing about many of the interest only mortgages sold with them was that there was no penalty for early repayment. I overpaid mine from day one and paid it off nine years early despite taking a hit from getting divorced along the way. I am lookin foreward to the endowment policy paying out in a few years time. It has not been a brilliant investment and would have left a shortfall. The differance between me, and no doubt many of you, and the people who are getting into trouble is that we take responsibility for our own lives and pay attention to what is going on. Am I angry about this products performance? No. I made a poor commercial decision and dealt with it.

[Guest tbatst2000]

What about the requirement for life cover on a mortgage?

Well, if you don't have dependants to worry about, simplest thing is just not to bother (most mortgage companies never check). However, assuming you do need life insurance as well, all the surveys show that it's still cheaper to take out a separate life policy and invest some way other than through an endowment.

I remember walking out of a financial (mis)advisers office in the early 90s when he point blank refused to sell me a repayment mortgage - said there wasn't enough commission in it for him, t0sser.

[Guest Steve Cook]

Endowment policies leave nine out of ten borrowers with shortfall

Endowment, interest only mortgages. These are a scam, designed to lure in the punters, and it sure worked out well for the suits.

I would personally categorize these things as a moral hazard, and they really played a big part in the crazy HPI in the last decade.

Too bad the moneys all gone, and only debt remains.

There are going to be MILLIONS of people out on their collective homeless and broke asses and begging by the time this tragedy plays out.

Endowment mortgages are what f*cked a lot of people over in the last HPC.

People never learn.

short memories and all that.....

Edited August 23, 2009 by Steve Cook

[the end is a bit nigher]

Endowment policies leave nine out of ten borrowers with shortfall

Endowment, interest only mortgages. These are a scam, designed to lure in the punters, and it sure worked out well for the suits.

I would personally categorize these things as a moral hazard, and they really played a big part in the crazy HPI in the last decade.

They have nothing to do with HPI in the last decade. They were a mortgage with an attached investment plan and were significantly different to IO mortgages you get today in that in the 80s and 90s you HAD to take out a method of repaying the loan. In the last few years it got to the stage by which you didn't have to take out any repayment vehicle but just sign to say you knew the money had to be repaid at the end of the loan period.

Based on IRs at the time these were taken out they would have easily repaid the mortgages, however those that issued them did not foresee the likelihood of low IRs and a crashing stock market.

[OnlyMe]

Just another part of the Ponzi Housing jigsaw.

Make unpayable housing costs payable by extrapolating and intertwining unachievable investment returns into the debt repayment mix.

[the end is a bit nigher]

Just another part of the Ponzi Housing jigsaw.

Make unpayable housing costs payable by extrapolating and intertwining unachievable investment returns into the debt repayment mix.

I think people do not yet fully understand the impact of these wonderfully low interest rates we have, with the exception of theoretically making debt cheaper.