During the 1980s and 90s a new concept of property mortgaging arrived in the UK. Endowment mortgages became extremely popular with homebuyers who wanted a secure but affordable method of repaying their mortgage debt. Most large financial organisations were happy to offer these products and they were sold by large banks, building societies and high street brokers.
The general concept of an endowment mortgage was that the customer would make regular installments into an investment fund managed by the endowment provider (the big financial organisations). The investment would eventually generate enough money to pay off the mortgage debt in full and usually the customer would be left with an extra amount or bonus at the end. In addition to this the customer would also have the benefit of life insurance for the duration of the investment period with cover provided up to the value of the endowment maturity value. The overall financial package of a combined insurance and savings product linked to lower mortgage payments, was almost too good to be true.
As a result there are currently around ten million active endowment policies in the UK.
Like most things that seem too good to be true, endowment mortgage policies have sadly proven to be extremely disappointing for the vast majority of customers. These investment products are closely linked to the worlds stock markets but with the recent 5 year global recession and sharp downturn experienced by most countries, the anticipated return on investment is proving to be far less than the endowment providers anticipated.
It is estimated that 80% of all existing endowment products will fail to meet the projected target amount and some will have considerable shortfalls. This means that potentially as many as 8 million people in the UK will fail to reap any bonuses from their plans but worst of all may completely fail to pay off their mortgage debt by the time their plan matures.
It was not long before the consumer groups began asking serious questions about the credibility of endowment policies and the regulatory body in the UK Financial Services Authority (FSA) was forced to act following complaints about widespread misselling.
It has since become apparent that millions of endowment policies were mis-sold in that the individuals or organisations conducting the sale, failed to follow the rules and notify the customer of certain key features relating to the advantages and disadvantages of the endowment products. Far too much emphasis was placed on the benefits of the products with little or no discussion about the risks involved with potentially erratic investments that were linked to the stock market. The message was that the plan simply could not fail and this was a flawed and misleading sales pitch.
The FSA have devised a scheme that allows endowment policyholders to make a formal complaint about possible misselling. The rules allow for such a complaint to be made once a warning letter has been received from the endowment provider indicating that the plan will more than likely fail to meet the projected target amount (this is known as a policy shortfall). If the complaint is upheld, the endowment provider or the salesman / selling organization must make an offer of compensation to the customer. The average compensation award is thought to be in the region of 5000.
Whilst it is possible for customers to complain personally, the FSA process is regrettably complex and many customers will need assistance from professional claims handlers in order to pursue their complaint effectively. Many endowment providers corrupt the process by using technical jargon and complex rules. They have also introduced Time barring arguments which have been allowed by the FSA. The rule here is that you have generally three years from the date of your first warning letter to make your complaint. This serves to confuse customers and many complaints that are pursued direct without professional assistance will simply fail. The majority of customers do not even bother to complain because of the complexities involved.
Thanks to consumer groups and professional claims handling bodies the UKs endowment misselling scandal is gathering a head of steam and victims are now more aware of the issues.
The important aspects for customers to remember are:
You only have a limited amount of time to complain 3 years from the date of your first letter from the endowment provider warning about a possible shortfall.
You must complain now to ensure that any shortfall in the projected target value of your policy is recouped. You may not recover the full shortfall amount but your compensation will go some way to bridging the gap.
You must also seek financial advice on your
mortgage situation because if a shortfall has been highlighted, the endowment plan you have is NOT going to meet your mortgage debt on maturity
If you currently have an endowment mortgage policy you must act now to ensure that you and your familys future remains secure. Be aware of the issues, be aware of the need to correct the misselling that you have been the victim of and most importantly be aware that only YOU can change the position that you now find yourself in.