Act now on mis-sold endowments: new article

southern_nick

Hi, can anybody help.

We started to buy our part ownership house back in 91 with a low cost endowment with London & Manchester and have a claim in for mis selling pending,

We also bought two further endowments with Royal london because we were going to buy the rest of our house at a later date, which we have now.

I sent a claim into the RL against these which they have come back and said our claim was justified.

They have offered to rectify the matter by returning all our premiums + 8% which they say is the interest we would have earned plus compensation, and then to cancel our policies.

But with only 9½ years remaining on my mortgage even using all the money from RL to pay off some of it. the new repayment mortage I would need to take out would be far in excess of what my endowments are costing me at this time.

The shortfall at this time being quoted is less than £1000.

are my only options stay with the endowments and take the hit (I have already made arrangements to cover the shortfall) or take whats offered, pay off an amount, and arrange a repayment for the rest?

Thanks

mayb_2

Sounds like a difficult one to judge on the surface - it all depends on whether you want to take a risk on the endowment paying up at the end of term. That is something you would need to take advice on from someone who understands the market. No doubt you will get a response on those lines from someone else on here. Are you saying that you have got the £1000 projected shortfall covered or have you more than this set by?

When giving you a possible return on your endowment a company is required to look at a range of rates of growth for your fund. These may not reflect reality at all, your fund may perform better or worse than this.

Although technically a mortgage can be missold to you, as the firm has admitted, in that you didn't understand the risk, it does not necessarily mean it wont pay off your mortgage - just that there is a risk that you had not taken into account at the time. So you really need to decide whether that is a risk you want to continue to take.

You do have a third option. It is possible to hedge your bets and keep the endowment policies or even just one of them and take up a repayment mortgage. Depends on your budget really. The endowment also gives you insurance so you would not need to take this out as an additional cost. It all depends on your attitude to risk in the end doesn't it.

Hope someone on here can help you to decide on that one.

turbobob

southern_nick wrote: »

I sent a claim into the RL against these which they have come back and said our claim was justified.

They have offered to rectify the matter by returning all our premiums + 8% which they say is the interest we would have earned plus compensation, and then to cancel our policies.

But with only 9½ years remaining on my mortgage even using all the money from RL to pay off some of it. the new repayment mortage I would need to take out would be far in excess of what my endowments are costing me at this time.

Are you sure it will work out a lot more expensive? Have you enquired about what the costs will be after you convert just the part of the mortgage covered by the RL policies to repayment assuming you pay the redress towards the mortgage (most lenders will do a partial conversion as far as I'm aware). E.g. if those policies were covering £30k and the refund + interest was £15k, you could convert the remaining £15k to repayment.

I guess though it would be better waiting until you know what's happening with the other policy before committing, if possible.

The company should pay reasonable costs for converting (and ERC's if applicable).

dunstonh

Endowment mortgages were normally cheaper than repayment mortgages. It was one of the benefits of an endowment mortgage for many people. So, going to repayment would cost more. 10-15% more would not be unusual.

With royal london voiding the policies rather than using mortgage fundamentals calculation, it suggests your mis-sale complaint was not the typical complaint. This calculation is usually used on pre-sale endowments rather than those complaining about risk.

The shortfall at this time being quoted is less than £1000.

Not all endowments are bad and a shortfall of £1000 could easily convert to hit target or provide suprlus. Many people have seen their projections improve a lot over the last 4-5 years.

The company should pay reasonable costs for converting (and ERC's if applicable).

There are no ERCs on switching between interest only and repayment.

mayb_2

Low cost endowments (especially those arranged in the early 90's) are the ones that rarely pay off at the end of term. The general consensus is that, when they were sold, it was already known that these vehicles were unlikely to reach target as they would have needed very high returns over term to make that happen. I remember that we took one out because it was the only way to fix the interest rates at 13% rather than the 15% that was the norm at the time. Within 2 years when the fixed rate ended and other mortgage interest rates came down, we found that our company would not bring the rate down from the 13% - so then it was back to being more expensive than most other people's mortgages and we had to pay more fees to change our mortgage part to another provider. In MHO it was not ever a cheaper option - the only savings being in the fact that you didn't need to take out a separate life insurance.

dunstonh

Low cost endowments (especially those arranged in the early 90's) are the ones that rarely pay off at the end of term.

Evidence please. A policy set up on a typical 25 year mortgage in 1990 is still running and wont mature until 2015.

The general consensus is that, when they were sold, it was already known that these vehicles were unlikely to reach target as they would have needed very high returns over term to make that happen.

Evidence please. Whilst there are issues with some Lautro projected endowments, those set up in early 90s were generally set to use around 7-7.5% target growth rates. Some more some less. This had dropped back to around 6% as the decade went on. I recall setting them up at 4.4% target growth rate.

turbobob

dunstonh wrote: »

There are no ERCs on switching between interest only and repayment.

Agreed but I meant on the capital reduction if they accepted the offer and used the redress to reduce their mortgage balance.

mayb_2

dunstonh I did the research when I was making my own claims about a low cost endowment mortgage and I believe my 'evidence' came from the FSA website. I also have friends and others on this site to go by. I think you will be able to pick some of it out of my posts at the time.

However if a policy has 9 years left to run and we are heading for recession, as many people more in the know than I am believe we are, then there will be no 'evidence' on its performance until it matures and this is obviously in doubt. I personally wouldn't wish to take that risk but that is a personal decision for anyone to make based on their own circumstances and opinion.

southern_nick

Hi,
Your'e right, they stated in their letter that the FSA had issued guidelines about the suitability of policies sold for deferred mortgages where the advance had not been approved. And that selling us these policies restricted the our choice of the type of mortgage.

It still leaves me with the dilemma. But as the losses are projected at the lower 4% growth, I think sticking with it is not such a massive gamble.
Thanks

mayb_2

Southern nick they don't sound like massive losses at £1000 on 4% growth so you are probably right its not such a gamble as those with £30,000 or more to find.