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Endowment Mortgages Remembered


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2005 is roughly the tenth aniversary of the final public awareness in 1995 of the appalling and nationwide scandal of the selling of equity linked mortgages, otherwise known as ENDOWMENT Mortgages, which were sold to them throughout the 1980's and early 1990's.

To this day there are thousands of agents, building society managers, mortgage brokers and EA's walking free when they should be in jail. These are the people who persuaded millions of people to take out Endowment Mortgages, claiming they were more "efficient" than REPAYMENT mortgages. Of course they were no such thing and were in some cases sold by COMPULSION to hapless mortgage applicants who were completely hoodwinked. Endowments were mis-sold with one thing in mind: to earn all involved (except for the house buyer) a fat commission which in many cases amounted to very large sums.

Such Endowments were later discredited (no-one ever mentions them nowadays), not only because the stock market failed to support their hugely over-optimistic reliance on equity and pension growth, but also because, under great pressure, people in the mortgage industry were finally forced to admit that Endowments were a massive con.

I would like to remind all here that many of those involved in the mis-selling of Endownments, and who spread totally inaccurate information as inducements, and pressure-sold them in league with EA's and brokers, are still roamiing free in the housing world and in fact it is highly likely that many if not most EA's, now in middle age and whom you might encounter, would in one way or another have been intimately linked to this epic scandal of apocalytic proportions.

Not only do many property "pros" have (conveniently) extremely short memories of the 1990 crash, and are pedalling out exactly the same denials that currently abound in the press and property industry, but also they remain unpunished for the misery they caused to thousands of mortgagees, some of whom took over ten to fifteen years to recover from the losses which Endowments combined with Equity poor performance and the 1990's crash brought upon them.

I just thought it would be a good thing to remind those whose memories might have become hazy.

VacantPossession

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Here are just some of the Endowment culprits. You will recognise many of the names as being very much in business right now

Companies making the headlines for Endowment Misselling

Abbey National Life

Abbey National sold 200,000 endowment policies. 98% of Endowment policies written by Abbey National have a projected shortfall! (source: Financial Times:1st May 2004)

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Lloyds TSB Life

Lloyds TSB sold 300,000 endowment policies. 98% of Endowment policies written by Lloyds TSB Life have a projected shortfall! (source: Financial Times:1st May 2004)

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Eagle Star

Eagle Star sold 175,000 endowment policies. 90% of Endowment policies written by Eagle Star have a projected shortfall! (source: Financial Times:1st May 2004)

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Royal & Sun Alliance (RSA)

RSA deterred complaints by quoting irrelevant legislation. The FSA intervened stating that the practice is unacceptable, breaches the rules governing complaints and is unfair on RSA's customers.

81% of RSA customers have received re-projection letters warning of a high risk of shortfall. Many of RSA's customers have been disadvantaged because of complaints being wrongly and unfairly rejected.

In March 2003 RSA were fined £950,000 for mishandling endowment misselling complaints. (Source: House of Commons Treasury Committee)

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Winterthur Life

Winterthur were disciplined by the FSA for its history of endowment selling practices. In September 2001 they were fined £500,000 for misselling 10,000 policies. (source: House of Commons Treasury Committee)

Winterthur rejected complaints from policy holders by quoting wrongly the so called ‘15 year rule’ (Limitation Act: 1984) which prevents disputes being heard in court more than 15 years after the event. Crucially, this rule does not apply to claims between financial services companies and their customers. Winterthur have acted wrongly in selling policies and then again in rejecting their customers complaints. (Source: Daily Mail & House of Commons Treasury Committee)

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Legal & General

Only 3.8% of Legal & General policy holders have complained about their policy. However, 70% of those that have complained have had their complaints upheld and have been awarded compensation! (Source: BBC News Online)

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Aviva (trading as Norwich Union)

Only 4% of Norwich Unions 1.2 million policy holders have complained. Only 2% of policy holders have had their complaints upheld. This is a staggering statistic and reflects Norwich Unions approach to their customer's legitimate complaints. (Source: BBC News Online)

In our experience, Norwich Union act aggressively in rejecting customer complaints and try to place the burden of proof on the customer, which is unfair, unreasonable and does not comply with the intention of the law.

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Friends Provident

Friends Provident are projecting that 90% of their policies will have a potential shortfall! (source: Financial Times:1st May 2004)

In December 2003 the FSA fined Friends Provident £750,000 for mishandling mortgage endowment complaints.

It seems that Friend Provident rejected customers’ complaints were in fact genuine and deserving of compensation but were rejected because the procedures applied by the company were inherently unfair and biased against their customers.

The firm’s failures persisted for several years and exposed a large number of customers to potential loss. Source: FSA press release 17 December 2003.

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Standard Life

Standard Life are projecting that 90% of their policies will have a potential shortfall! (source: Financial Times:1st May 2004)

73% of all Standard Life policies are now at a HIGH risk of shortfall on maturity and 13% have a possibility of a shortfall, leaving just 14% of policy holders on-target to repay their mortgage at the end of it’s term. (Source: BBC News Online)

VacantPossession

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Here are some salient facts about Endowment misselling. Source www.endowmentjustice.com

There are over 10 MILLION endowment policies in the UK.

It is estimated that up to 90% will not reach their financial target at the time they reach maturity.

The average 25 year plan has a shortfall of between 25% and 50%.

Many of these shortfalls being as high as £30,000.

It is also estimated that as many as 50% of these policies may have been mis-sold.

This is a big problem and one that features highly on the priority list of the Financial Services Authority (FSA) who regulate the insurance industry.

The FSA has already fined a number of big Life Assurance companies for their past mortgage ENDOWMENT MISSELLING practices.

The Problem also has the attention of high profile consumer groups such as the Consumers Association.

VacanPossession

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Guest Charlie The Tramp
If you bought an endowment to cover a mortgage from April 1988 and it has a shortfall - which is of course highly likely - COMPLAIN AND OBTAIN REDRESS.

And when you receive the compensation, do not pay it off your mortgage, or surrender your policy, but spend it on a new car, kitchen, and that dream holiday.

After all that`s what 70% of those compensated did.

You could try complaining again. :D

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I have paid £82.78 a month to Friends Provident for 18 years - bar a few pounds I have been paying £1k a year. My policy was designed to repay a mortgage of £58k.

The last notice I got said it looked likely the policy would pay out the minimum guaranteed sum which is 32k.

So I will have paid in 25k over 25 years to get back 32k.

Back in the late 80s and early 90s interest rates were in double figures.

I did some sums a while ago and I would have been much better off if I had paid my £82.78 into a Building Society each month. I can't claim for mis-selling (although I was seriously mis-sold) as my policy was taken out in 1987.

Friends Provident and all the others represented themselves as experts. They lied. They should pay. They are thieves - the lot of them.

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To this day there are thousands of agents, building society managers, mortgage brokers and EA's walking free when they should be in jail.

One law for the rich ...

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Me too? I only had one, about the same time though.

I look back on it as my financial baptism.

How about that! Time to join the party, bang in a claim then start spending :lol:

I remember the greasy EA type that sold me the endowment. BMW, greased back hair, rapid fire speech, cheap suit, streetwise. They must have a radar that seeks out the financially uneducated- and then fleeces them.

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Surely the endowment scandal will be dwarfed by the interest only self cert scandal. I know of someone who has taken a 100k interest only mortgage whilst earning around the minimum wage.

And yes, I did tell him he was commiting financial suicide!

Sure, from the buyers point of view interest only might be a bit suicidal, but at least the fixers of the mortgage don't steal up to 10k - 20k commission and fees before you even start, as they did with endowments.

VacantPosession

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VP,

I eventually smelt a rat when the company that issued the policy was sold on for the second time in about 3 years. I got very good advice and got the money back quickly - there were hidden charges all over the place, most of which weren't in the original sales docs.

Where did that errant ? come from in my first post?? :lol:

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FP,

Er, how much?  <_<

Wasn't it about 1-2 years of contributions lost in commission? - although you'd never be able to tell from the sales pitch or the docs all those scaling x/32 charges during and at the end of the plans if I remember correctly.

FP, I'm sure about the only curve most IFA's at the time could draw was an exponential curve with no breaks, no pullbacks, and most definitely always heading off to infinity.

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IO/endowment

Same root cause in my view:

Endowment - bet that stock markets will continue to grow for 25 years at the rate that they grew over the previous 5

IO- bet that house prices will continue to grow for 25 years at the rate they grew over the previous 5.

Like all vices - debt is easy to get into, but hard to escape from (I'm in a clavinistic mood today)

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IO/endowment

Same root cause in my view:

Endowment - bet that stock markets will continue to grow for 25 years at the rate that they grew over the previous 5

IO- bet that house prices will continue to grow for 25 years at the rate they grew over the previous 5.

Yes, it's a gamble, nothing more. Very few people seem to realise this.

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Yes, it's a gamble, nothing more. Very few people seem to realise this.

The person I know doesn't even think that prices are going to continue to rise over the next 5 years, he just looked at the monthly replayments and found that IO was the only way he could afford to "buy" a home, and the lender obliged.

Many people have no interest in finance and economics, that is why irrisponsible lending is so dangerous.

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To be a (partial) devil's advocate;

Originally the endowment mortgage was created to take advantage of the MIRAS and LAPRAS tax reliefs. It maximised your outstanding mortgage, and added in a life assurance policy.

The net result was to maximise the total tax relief you received, while exposing you to increased gains from the stock market.

Many people made an absolute fortune out of their endowments when they got the terminal bonus, and had loads left over after repaying the mortgage.

What was criminal was that after MIRAS and LAPRAS ceased to exist, and the raison d'etre of the endowment mortgage had vanished, the mortgage companies continued to sell them, purely because they paid high commissions.

To be fair, many mug-punters were requesting them, on the advice of friends and family, but far more were pushed into them by a salesman who gave very poor advice.

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Yes some people did get good pay outs. But this is the point - the people running these things told us they were financial experts - but 5 years ago (whatever) they gave away far too much of the fund to policies that matured - they thought the good times would last forever. They are supposed to be experts. They screwed up. They should pay.

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FP,

Wasn't it about 1-2 years of contributions lost in commission? - although you'd never be able to tell from the sales pitch or the docs all those scaling x/32 charges during and at the end of the plans if I remember correctly.

FP, I'm sure about the only curve most IFA's at the time could draw was an exponential curve with no breaks, no pullbacks, and most definitely always heading off to infinity.

Endowment commission was about 1 yr's payments. Thus £1,000 annual payment meant about £1,000 commission (perhaps £1,500 in the extreme). Hence my query about £20k commission.

OM: You're right 'advisers' said endowments would pay off the mortgage and produce a lump sum of the same amount. Of course balderdash. Hence why all should obtain redress for any sold since 4/88. :)

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To be a (partial) devil's advocate;

Originally the endowment mortgage was created to take advantage of the MIRAS and LAPRAS tax reliefs. It maximised your outstanding mortgage, and added in a life assurance policy.

The net result was to maximise the total tax relief you received, while exposing you to increased gains from the stock market.

Many people made an absolute fortune out of their endowments when they got the terminal bonus, and had loads left over after repaying the mortgage.

What was criminal was that after MIRAS and LAPRAS ceased to exist, and the raison d'etre of the endowment mortgage had vanished, the mortgage companies continued to sell them, purely because they paid high commissions.

To be fair, many mug-punters were requesting them, on the advice of friends and family, but far more were pushed into them by a salesman who gave very poor advice.

A salutary warning on making long term financial commitments that rely on tax breaks for their up-side. Anyone want to guess the tax rate on your pension/house sale in 20 years time when the sh*t really hits the fan on the ageing population?

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Endowment commission was about 1 yr's payments.  Thus £1,000 annual payment meant about £1,000 commission (perhaps £1,500 in the extreme). Hence my query about £20k commission.

You may be right, but there is evidence (go to the endowment victims sites) to suggest that fees and commissions were often way above the modest sums you quote. There are plenty of posts from those who indeed claim that fees and commissions amount to 10-20k on large mortgages.

VacantPossession

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