The story of the endowment mortgage is now written into the history of house purchase in the UK – and engraved into the memories of those unfortunate buyers, whose hopes of easing the financial strain of buying a home came to nought. Having said that, there were some who would have been only too happy to record a zero; these are the doubly unfortunate ones who were left with a negative figure.
How could this have happened? They are the buyers who followed the rules, kept their payments up to date and in fact did everything that was asked of them, only for them to end up with a debt instead of surplus funds. Unfortunately a lot of the problem was created by the future victims themselves; house prices were climbing rapidly and it was steadily becoming more difficult to afford a ‘conventional’ mortgage.
The house buyers were already looking for any ways to ease the financial strain, when along came the endowment mortgage. It was like an answer to a prayer and the ‘facts’ relating to it were passed along by word of mouth, from those who were preparing to take the plunge or had already done so. On the receiving end of these ‘facts’ were holders of repayment mortgages or new mortgage seekers, all of whom were anxious to find lower cost options. The stories found avid listeners, eager to believe the best of the information and ignore the worst.
The tales which circulated were based on fact, in that they said that only the interest was paid over the life of the mortgage and at the end, the money which had been invested would pay off the borrowing. Great emphasis was placed on the ‘fact’ that sufficient would be left after all debts had been met to provide a fund sufficient for a new car, holidays or home improvements.
To their credit, most lenders who offered the option gave the buyer full details and warned clearly about the possible pitfalls, including the very real risk that funds generated by the investment may not be sufficient to pay off the debt, let alone leave a surplus. Many found the temptation irresistible, ignored the facts which they didn’t like the sound of, and took the plunge. There were those who resisted the apparent lure of easy money and stayed with their repayment mortgages – then along came the dodgy salesmen and endowment mis-selling was born.
Perhaps, after the first rush, endowment selling was becoming more difficult, and training of salesmen was cut back to get them out on the road as quickly as possible. Whatever the cause, very generous commissions were available and facts were relegated to a back seat if a sale was in the balance. So the myth of excess funds being available at the end of the agreement became established ‘fact’ and many more buyers took the bait.
The true facts have come to light in recent years, when the returns from endowment investments have been falling steadily, leaving insufficient funds to cover the outstanding mortgage debt. Investments in properties and shares have proved to be more successful than other alternatives, but many are not now providing adequate funds. Even companies investing in the better performing market sector report that some 50% of their endowment agreements are unlikely to offer a positive return, with the shortfall expected to average almost £1500.
It is not difficult to contemplate the fate of some agreements where the dependency has been on the returns on cash and property investments; some unfortunate endowment owners can be expected to suffer considerable shortfalls against mortgage balances owing.
If you are in a shortfall position and wish to get out of your commitment to endowment, it can be done but must be approached with caution. Consideration has to be given to any charges which may be applied in the form of exit charges by the company who issued the endowment, in addition to the current shortfall situation. There could be some fairly substantial costs involved. Expert advice is essential at this point, and is probably easiest to find by checking on line for brokers who specialise in providing help in these circumstances.
It is said that a problem shared is a problem halved – no broker is going to promise this sort of result, but there has to be at least a vicarious pleasure in knowing that you should get the best result available by leaving the details to those who know how to achieve it.
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