By SYLVIA MORRIS
PUBLISHED: 23:00 GMT, 27 March 2012 | UPDATED: 15:36 GMT, 29 March 2012
Article from This is Money
Under lock and key: Most endowments
are failing to cover many mortgages
Up to 360,000 families may be forced to sell their home this year because record numbers of endowment policies have failed to deliver.
In many cases, these homeowners are seeing endowments fall £100,000 short of what they were promised.
Many who have saved loyally for 25 years will get a payout of little more than £25,000 — far short of the capital they owe on their home.
With banks and building societies increasingly reluctant to lend to those approaching retirement, many will be forced to sell their homes or dip into savings to clear their mortgage debts.
These homeowners will have seen their properties increase in value by up to 250 per cent since they bought them. But tapping in to their equity means leaving the family home, and often moving to a different area.
Up to two million may end up in the same situation over the next five years.
Payouts on endowment policies have been falling for years. With some companies, the majority of policies coming to the end of their term this year won’t provide a sufficient sum to pay off the home loan.
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Endowments: Were you mis-sold?
How endowment payouts have crashed
A third of a million families may be forced to sell their homes this year as endowment policies fail to deliver
It comes as Martin Wheatley, a director of the Financial Services Authority, raised fears that up to 1.5 million homeowners in their 50s with interest-only mortgages are sitting on a time-bomb and won’t be able to pay off their loans.
Patrick Connolly, from independent advisers AWD Chase de Vere, says: ‘Payouts have fallen over the past few years and this is likely to continue. The risk of savers having to sell their home to pay off the home loan is increasing.’
Insurance companies will see a record number of policies mature this year, a result of the endowment mortgage sales frenzy in the late Eighties.
More than six million policies were taken up, bringing in annual premiums of more than £2.3 billion for insurers.
They were sold to home buyers as a way to pay off their mortgage — and provide an extra lump sum if investment returns were good.
Homebuyers paid interest to the lender but none of the capital they had borrowed.
Instead, they put monthly payments into stock market-linked with-profit policies.
These were supposed to smooth out the stock market returns and add an extra bonus each year — called a reversionary bonus — to boost the value of the policies.
Policyholders could also expect an extra final bonus at the end of the term.
But the promised investment returns did not materialise, leaving homebuyers with a shortfall between what their policies will pay out and what they still owe their mortgage lender.
In just the past five years, payouts on policies have fallen by as much as 44 per cent. Five years ago, a maturing 25-year policy paid out £42,133 with Norwich Union.
On a similar policy maturing now, policyholders can expect £23,465. The figures are based on a £50-a-month saving by a man who took out a policy nearing his 30th birthday.
Aviva — which includes the old General Accident, Commercial Union and Norwich Union — has 71,000 endowments maturing this year. It expects just one out of every 100 policies to meet its target.
An Aviva spokesman says: ‘We’ve been through poor investment periods in the past five years and this is reflected in the payouts.’
At Scottish Amicable, part of Prudential, only 3 per cent are expected to come up to scratch, leaving more than 34,000 with a shortfall. Five years ago, 95 per cent met their target.
Standard Life has 106,000 endowments maturing this year. Nearly 104,000 — 98 per cent — will show a shortfall. Five years ago, 88 per cent of its policies were unsuccessful.
At Legal & General, 40 per cent of policies missed their target five years ago. This year 86 per cent of the 41,000 maturing — or more than 35,000 homebuyers — will see less than they expected.
The Financial Services Authority demands firms write to policyholders each year to tell them how their policies are progressing.
You have three years after receiving your first warning letter in which to complain you were mis-sold the policy — for example, if you did not understand the underlying risk of stock market investment.
But nearly half of those registering complaints with the ombudsman have missed this deadline.
Martyn James, from Financial Ombudsman Services, says: ‘Some consumers told us they thought they would be covered by final bonuses, only to find that these were low or not made at all. Others thought things might improve if they held out for a bit.’
Article from This is Money
