If there's one financial product that has hardly been out of the news in the last year or so, it's the endowment mortgage.
There’ve been warnings for months now of disaster for those of us who were expecting an endowment to pay off our mortgage. Particularly those who bought then between 1987 and the early 90’s.
Tracker Mortgage
Endowment shortfalls
What should if do if you have been mis-sold an endowment mortgage?
What is the best way to pursue your complaint
Tracker Mortgage
And the latest type of mortgage - the Tracker mortgage - a new type of mortgage that tracks the base rate and is proving a big hit. It’s become one of the hottest sellers in the market.
Tracker mortgages bring new choices and shut the door on shock increases. For many borrowers, choosing a base-rate tracker mortgage makes sense. Experts say the base rate has been maintained at 6% for the past 10 months, the housing market has not overheated as doom merchants predicted and some observers hope for a cut in the base rate next March.
So what’s the difference between a standard variable rate mortgage an a tracker mortgage?
With a tracker mortgage the interest rate paid is dependent on what the Bank of England’s Monetary Policy Committee decides on the base rate. But with a standard variable-rate loan, the rate can go up at any time, even if the base rate is maintained, or falls.
Variations on the tracker theme.
First there is the lifetime tracker, which as the name suggests, tracks the base rate for the life of the loan.
Second there is the tracker that runs for a set period at a pre-determined margin above or below the base rate before moving to a lender’s standard variable rate.
Finally there are trackers where the difference between the base rate and loan rate will not exceed an agreed level.
However, look out for the small print that may provide the lender with an opt-out clause.
It is worth looking for exclusive base rate tracking loan deals through leading mortgage brokers.
But trackers are not to everyone’s taste. Those borrowing a large sum in relation to income would probably be better off taking a fixed or capped mortgage because these products offer stronger guarantees.
ENDOWMENT SHORTFALLS
Millions of people have been sent colour-coded letters from their insurers informing them of possible endowment shortfalls. The letters are colour-coded to illustrate how likely is is that a policy will fail to pay your mortgage
Red Letters
These are a worry. It means that there is a high likelihood that the endowment will not grow sufficiently to pay off your mortgage. In these situation it is important not to react simply by increasing the premiums into your policy. - and certainly do not take out a second endowment to make up the difference. Instead consider paying the required sum into an ISA which is likely to perform better than an endowment policy.
Amber Letters
This is not as serious as red, but it still means that there is some danger that your policy will not grow sufficiently. Your scheme must grow by more than the recommended 6% a year.
Once again resist paying more into the scheme. It would be wise, however, to make extra provision in an ISA or savings account to make good any potential shortfall.
Green Letters
In theory, this means you are in the clear, as long as your policy grows by 6% a year - which should not be a problem.
The Financial Services Authority estimates that, in total about 4m of the 10m mortgage endowment policies will be red, with another 2m amber.
What should if do if you have been mis-sold an endowment mortgage? Do you have grounds to complain?
Making a complaint about your mortgage or endowment can be hard work. But if you have a problem that can be traced back to unsuitable advice or maladministration, you should be able to get redress. You can't complain about how your endowment has performed but you can complain about how it was sold.
The most important issue is if the product was suitable for you at the time, and whether you understood what you were buying and the risk you were taking.
Check these points to see if you have grounds for complaint
Your insurer is likely to have to compensate you if you have suffered a loss if:
*you were not told that endowments are invested in the stock market and are therefore risky
*the salesman did not make it clear that the endowment may fail to pay off your mortgage, If you have been asked to increase payments you may have a stronger case
*the endowment matures after your retirement date
*you were advised to cash in your endowment and then take out another policy
What if you don’t fall into those categories?
Even if your situation is not covered by any of the above, you may still have a valid complaint.
How do I go about making my complaint?
Making a complaint about your mortgage or endowment can be hard work. It involves endless letters, telephone conversations and paperwork.
Here is the best way to pursue your complaint
FIRST complain to the firm that gave you the advice about your mortgage endowment. If you are not sure whether that was the endowment company itself, your lender, or another financial adviser, complain to all.
It is no good taking your complaint straight to the Ombudsman: you have to exhaust the complaints procedure of the company concerned first.
THEN state your case in writing as clearly as possible, quoting any policy numbers or customer reference numbers, listing events in date order, and enclosing copies of all relevant documents (never the originals).
Ask for a copy of the firm's complaints procedures which should include a timescale for dealing with your complaint.
If you don't hear back then write again setting your own deadline - 14 days is reasonable for a first response. Keep all communication in writing, so you have a record of who said what and when they said it.
NEXT say what you expect the firm to do - such as correct the fault, return your money, or pay something for your distress.
THEN IF you do phone, note the name of the person you speak to and record what was said by both of you. Follow up with a letter confirming your conversation.
AND IF your deadline passes with no response, write again setting another deadline. Send a copy to the company's chief executive (ask the company switchboard for his name or find out from a public library).
NEXT YOU may be offered compensation. Ask on what basis it is worked out, and do not be pressurised into accepting unless it is what you are looking for.
THEN IF you are not satisfied with the company's response, ask for a letter of deadlock. You can then use the independent complaints service provided by the Ombudsman scheme. It won't cost you anything, and if you don't agree with his ruling, you can usually pursue your claim through the courts.
NOW THE FIRM should tell you which Ombudsman scheme to use. If not, find out from the helpline run by the Financial Services Authority on 0845 606 1234.
THEN PHONE the Ombudsman to make sure it is the right one for you, they can deal with your case, and to ask for a form.
Note that the PIA Ombudsman, who deals with complaints about sales of investment products and independent advisers, may not be able to help if you took out your endowment before April 29 1988.
He can only investigate sales made before then if the firm agrees. Contact the PIA Ombudsman to check if your firm is covered.
Companies have to abide by the Ombudsman's rulings up to £100,000 for the Personal Investment Authority, the Banking and the Building Societies Ombudsman.
If you have been offered compensation, the Ombudsman Bureau may be able to give you a view on whether it is reasonable or not.
The Financial Services Authority has a free guide on how to complain which includes details of how to contact all the Ombudsman's schemes. Telephone 0800 917 3311 for a copy.
The FSA Consumer HelpLine - 0845 - 606 1234
The PIA Ombudsman 020 7216 0016.
The Financial Ombudsman - 020 7964 1000
DON'T CASH IN YOUR ENDOWMENT OR STOP PAYING PREMIUMS JUST BECAUSE YOU THINK IT WAS MIS-SOLD. YOU WILL ONLY GET FULL VALUE FROM THE PLAN BY KEEPING IT TO MATURITY.
From BBC
