Act now on mis-sold endowments: new article

dunstonh

I had a low cost endowment that had no hope of paying off the mortgage even when it was sold to me - it was shortfalling by £25000 very early on and we did not save a penny as I recall we just avoided paying more on a higher rate of interest - even that benefit was lost when the company would not lower our mortgage rate when everyone else lowered theirs. Either way we were streatched to the hilt and it benefitted us nothing at all except a load of anxt and money issues that we are still dealing with.

That was your scenario. The OP had a pre 1984 policy which got LAPR tax relief and that would have made the monthly payments cheaper for the whole term. If you took a typical £25 pm average saving over a repayment mortgage then for 25 years that works out at £7500. So, in this example, a shortfall of less than £7500 means you are better off over the term.

mayb_2

The point is dunstonh we planned to pay off the mortgage - end of. The rest is just smoke and mirrors to me. It did not do what it was taken out to do and that is the bottom line as far as I and many others are concerned. The fact that I could have been even worse off is no comfort to me and I am sure that others would feel just the same. It never happens with a straight repayment mortgage and the end result is a paid mortgage - they don't think about the extra tax they paid in comparison to someone else and are not aware of it. I would rather have been in that position than the one I find myself in and that is the point.

dunstonh

It never happens with a straight repayment mortgage and the end result is a paid mortgage - they don't think about the extra tax they paid in comparison to someone else and are not aware of it. I would rather have been in that position than the one I find myself in and that is the point.

They were aware of it. Maybe not directly but the the endowment mortgage would have been quite a bit cheaper than the repayment mortgage. So, when comparing the two options for price all those years ago, the cost saving would have been a key reason for many people.

Crazy_Saver

dunstonh wrote: »

That was your scenario. The OP had a pre 1984 policy which got LAPR tax relief and that would have made the monthly payments cheaper for the whole term. If you took a typical £25 pm average saving over a repayment mortgage then for 25 years that works out at £7500. So, in this example, a shortfall of less than £7500 means you are better off over the term.

A fair comment dunstonh but only if it is made by someone, like yourself, who is willing to make it clear to the purchaser that if you go down the endowment route you may save a specified amount every month but there's a chance that your mortgage will not be paid at the end of the term. But if you take a repayment mortgage, you may pay slightly more each month but you're guaranteed to have paid off your mortgage at the end of the term.

I know the situation is very different today but back in the late 80's early 90's that was the bottom line and the sad fact is, is that not many of us who were not part of the financial world were aware of it!

I know for a fact that if we had been aware of it, we would never have chosen the endowment as we have never been the type of people to risk the important things in life. We don't even use credit cards apart from really large purchases when we use them for their security benefits and pay them off before the end of the month.

I appreciate your comment and on reflection maybe we were slightly better off each month for the 15 years that we had the policy but not to the tune of £33,000 which was the total of our shortfall! Yes we have now sold the endowment but the value of the sale didn't even cover 50% of the shortfall.

Moan over:rolleyes:

dunstonh

I know the situation is very different today but back in the late 80's early 90's that was the bottom line and the sad fact is, is that not many of us who were not part of the financial world were aware of it!

If you looked at sales back in the 90s and applied todays standards then I think most would be classed as mis-sales. Modern standards and expectations are higher. Could do with a bit more tweaking and hopefully the RDR will take care of that. Not perfect but a lot better. For example, from November last year, investment recommendations have to take into account the ability of the consumer to understand the type of investment they have. Thats November 2007. Many would say its nearly 20 years late. Some would say its common sense. However, it is now a requirement.

I appreciate your comment and on reflection maybe we were slightly better off each month for the 15 years that we had the policy but not to the tune of £33,000 which was the total of our shortfall! Yes we have now sold the endowment but the value of the sale didn't even cover 50% of the shortfall.

Yours is a crazy shortfall. Luckily (but not for you ) most shortfalls are much smaller than that. I really have to wonder how some of these endowments with the big shortfalls actually got set up. They must have really high target growth rates. The ones that I did used 4.4% p.a. Typically 6%-7% was the norm but I have seen some as high as 9% and one at 11%. Those last two really didnt have much of a chance. I do think that if the shortfall is over a certain percentage of the target amount then the endomwent sale should be investigated with the provider and adviser taking some liability as one with a high target growth rate really wasnt fit for purpose. A small shortfall at the end though is still often a financial advantage over the term although it may not feel like that.

If you could use a small target growth rate and still be cheaper than repayment then it really was a viable option if risks explained.

I know people do forget this now and i have said this before but the most common reason for doing an endowment mortgage was not the investment potential or anything but the lower monthly cost. Of course, my main period of doing endowments was during the last house price crash when budgets were stretched, we were in recession and interest rates were sky high.

Crazy_Saver

dunstonh wrote: »

If you looked at sales back in the 90s and applied todays standards then I think most would be classed as mis-sales. Modern standards and expectations are higher. Could do with a bit more tweaking and hopefully the RDR will take care of that. Not perfect but a lot better. For example, from November last year, investment recommendations have to take into account the ability of the consumer to understand the type of investment they have. Thats November 2007. Many would say its nearly 20 years late. Some would say its common sense. However, it is now a requirement.



Yours is a crazy shortfall. Luckily (but not for you ) most shortfalls are much smaller than that. I really have to wonder how some of these endowments with the big shortfalls actually got set up. They must have really high target growth rates. The ones that I did used 4.4% p.a. Typically 6%-7% was the norm but I have seen some as high as 9% and one at 11%. Those last two really didnt have much of a chance. I do think that if the shortfall is over a certain percentage of the target amount then the endomwent sale should be investigated with the provider and adviser taking some liability as one with a high target growth rate really wasnt fit for purpose. A small shortfall at the end though is still often a financial advantage over the term although it may not feel like that.

If you could use a small target growth rate and still be cheaper than repayment then it really was a viable option if risks explained.

I know people do forget this now and i have said this before but the most common reason for doing an endowment mortgage was not the investment potential or anything but the lower monthly cost. Of course, my main period of doing endowments was during the last house price crash when budgets were stretched, we were in recession and interest rates were sky high.

Thanks for your input dunstonh. After reading it I couldn't resist going through the old paperwork to find out what target growth rates were used to sell us our policy.

They were.....7%...9.4%...10.7%

I suppose after reading your comments, the figures speak for themselves in explaining the ludicrously high shortfall:eek:

We used the sale of the "zombie" endowment and a ten year extension to the mortgage to clear the shortfall. Not ideal by any means as we hoped to be mortgage free at the end of the original term which was supposed to be 2016.:(

dunstonh

They were.....7%...9.4%...10.7%

I suppose after reading your comments, the figures speak for themselves in explaining the ludicrously high shortfall:eek:

I would reckon that it would have a 9.4% target growth rate. That would explain an awful lot then. Problem was they would have based that on the fact that even pretty naff investments managed more than double digits p.a. average in the 60s, 70s and 80s. In other words they used past performance as an indication of future returns.

Perhaps you should get your board name changed to Crazy Shortfall

dreamylittledream

dunstonh wrote: »

If you looked at sales back in the 90s and applied todays standards then I think most would be classed as mis-sales. Modern standards and expectations are higher. Could do with a bit more tweaking and hopefully the RDR will take care of that. Not perfect but a lot better. For example, from November last year, investment recommendations have to take into account the ability of the consumer to understand the type of investment they have. Thats November 2007. Many would say its nearly 20 years late. Some would say its common sense. However, it is now a requirement.



Yours is a crazy shortfall. Luckily (but not for you ) most shortfalls are much smaller than that. I really have to wonder how some of these endowments with the big shortfalls actually got set up. They must have really high target growth rates. The ones that I did used 4.4% p.a. Typically 6%-7% was the norm but I have seen some as high as 9% and one at 11%. Those last two really didnt have much of a chance. I do think that if the shortfall is over a certain percentage of the target amount then the endomwent sale should be investigated with the provider and adviser taking some liability as one with a high target growth rate really wasnt fit for purpose. high.

Pretty much every unit linked Allied Dunbar policy sold from the early 90s onwards had a the t/a based on a growth rate in excess of 10%. Some significantly so...

Of course because of this these were some of the first policies to fall victim to timebarring - before the FSA actually forced the 'red' letters to make clear the actual situation and options available to those affected.

Ah the ironies of non retrospective regulation

Crazy_Saver

dunstonh wrote: »

Perhaps you should get your board name changed to Crazy Shortfall

I like your sense of humour dunstonh!!!!:rotfl:

linas

Hello

Inf- scottish life endownment- 20 years 1988 a £21,000 only targeting 10,000

Ive posted the complaint letter and have recieved a reply - I really do not understand all this and do not know what to do. I have been paying scottish life for 20 years and due to complte in 5 years.

The reply from scottish life is.

Scottish life is unable to assist and that according to thier records L&B Mellor insurance brokers were acting as my finacial adviser and a re independent of Scottish life. Mellors are an estate agents that sold the house. Ive never had a finacial adviser. They say i have to take this up with them. I do not think they even exist now - 20 years later. also the estate agent had a halifax service counter etc and one man sorted our mortgage and endownment - How the heck am i to know who employed him - he worked for all of them. He had all the info and documents from scottish life, the halifax. Its scottish life that sold me the policy and them i have been paying for 20 years.

Also they say' our records indicate that the policy reivews were issued in 2001&2.' they say they have enclosed copies -there are no copies enclosed! Also they say 'However, due to internal IT issues a small number of policy reiews were not issued when originally due. Regretfull your plan was one affected and for this we are sincerely sorry that we have not provided a reiview since 2002.'

I have never recieved this review nor was there a copy enclosed. The first time i was aware was when i phoned to check as another of my policies is falling behaind too. They have lied and its devistating. Its them ive been paying for 20years, and this guy was theyre scottish lifes representaive as well as a representative of the halifax - they just sold me the house. in 1988 a finacial adviser wasnt even a title used so what the heck are they going on about? Not sure if L Mellors estate agents even exists now

Please help with any advice and guidance- Thankyou Lina

ps -I hope im posting in the correct location or should i have started a new thread