Act now on mis-sold endowments: new article

claudiaderi

I took out my first mortgage 20 years ago when I was 19 years old and desparate for my own place. The building society at the time Nationwide, agreed to give me a mortgage that was well over the 3.5% of my annual wage on the condition that I took out an endowment with Guardian Exchange. To be honest I didn't know what it was or how it worked ( and I'm still quite ignorant about it). The amount was for £61,000 and was indexed so I'm actually paying £146 a month for it today, which, I've been told is way too high. I was not aware of the mis-selling claims and to be honest I wouldn't know how to go about it as my memory of how it was sold is so vague. I believe I may still have all the paperwork for that mortgage in my loft but I dont know where to start when it comes to writing a letter as I'm not sure what counts as mis-selling. Can anyone explain.
Thank you
Claudia

dunstonh

Mortgage1 - normal endowment mortgage at 65k. Property sold in 2001 and mortgage repaid but balance was 80k due to reasons we do not know. my guess is we were charged higher rates then were advised for the early years and they were added to balance.

There is no reason for the mortgage to increase apart from missing payments or borrowing more later on.

The redress offered has a dateline running out in couple of days. I have been trying to get someone to assist and am still waiting for their reply. I have written back to say that the figure is not right because – they used the guaranteed amount on death – for calculation while we borrowed 65k but looks like they ignore this. we have paid off 80k balance outstanding as property was sold. My logic is they should use 65k in their repayment mortgage calculation and redress due should be 80k paid less the repayment balance it should be. Is this correct? They ignored or not aware? 80k paid. One year after selling we surrendered the endowment. We still have a mortgage because

They are correct in using the 65k figure. My "guess" is that at some point you increased your borrowing. The endowment was not increased (which it cant be) and no top up or alternative was arranged. That isnt the fault of the original endowment adviser and no liability for the extra amount stays with them. You need to find out where the extra money came from

Mortgage2 – while having the first endowment mortgage we had a business and was advised to have a pension endowment for the shop. after 4 years we sold shop and business due to health and moved to a house nearby.

You cant have a pension endowment. That is like saying I have a lorry car. You either have a pension or an endowment. Which is it? (the paperwork should say - i'm guessing pension mortgage).

Pension plan + mortgage2 for shop has 3 loans for term of 20 years. Should the calculations use the secured loans on the pension only? I am waiting a breakdown of redress figures still and the redress is for the next residential house mortgage we moved into for 17k as that’s the balance before changing to repayment.

pension mortgage redress calculations are messy because the variables are greater. Without knowing those its really hard to so.

Also I note in their calculations they use terms as 21 years and for next mortgage as 16 years 11 months when it should be 20 years and 16 years per agreement. Is this normal practice?

If you increased your borrowing over the years then they would not be all 20 years but would have different terms.

pension redress offer is very small.

If a good provider was used then often the redress is small or even non-existent. Especailly if the mortage was closed before a stockmarket crash as that is the point of calculation and high market values mean you could be better off or not much worse off than had you done it on repayment basis.

The calculation should compare the options and put in you in a financial position you would have been had the alternative been done. Having a pension mortgage or endowment mortgage doesnt mean it was bad. I have seen some really awful ones over the years but also seen some very good ones. I have also seen some very good ones been upheld on complaint and not a penny paid out.

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The building society at the time Nationwide, agreed to give me a mortgage that was well over the 3.5% of my annual wage on the condition that I took out an endowment with Guardian Exchange.

20 years ago lenders could insist on certain mortgage deals being endowment only if they wanted.

The amount was for £61,000 and was indexed so I'm actually paying £146 a month for it today, which, I've been told is way too high.

Endowments can only index link payments for a limited period. Typcially that was the first 5 years. They have to have at least 10 years with the same premium to be an endowment (and qualify for tax purposes).

The premium alone is not enough to say if its high or low. What is the target growth rate. A low target growth rate will have a higher premium than a high target growth rate. However, the low target growth rate plan will have a bigger lump sum payment. Does the premium include life and CI cover or just life cover?

I was not aware of the mis-selling claims and to be honest I wouldn't know how to go about it as my memory of how it was sold is so vague.

At least you are honest about it. Many are not. A mis-selling claim would be that you were not made aware of the risks and would have chosen a repayment mortgage instead. Having an endowment is not a mis-sale. Having a good one or a bad one isnt a mis-sale (having a bad one that is). Poor performance is not a mis-sale. It all comes down to whether you knew the pros and cons of an endowment mortgage and that it was risk based.

mayb_2

Claudia you have not said whether you have received notice that your endowment policy will not pay off your mortgage. If you have had a final notice letter telling you that you have 6 months to make a claim then you have not run out of time until the date specified. If you have not received any information about that policy (including up to date information each year about its performance) then something is going wrong here.

You only have one basis on which to make a claim and that is that you were unaware at the time of purchase that there existed a risk that your policy would not pay off the mortgage and would not have purchased it if you had known there was a risk it would not repay the mortgage. In other words you were adverse to risk, You cannot claim simply because it failed to perform the way you wanted or expected it to.

I had an endowment mortgage that had changed hands twice over the years I had it and had ended up with the Guardian Royal Exchange (I believe that is what it was called at the time) and they paid up without a murmer on receipt of a letter. I used a template letter that was available on the Which site. I am not sure that is still the case but there are template letters available through the main site here. If you go to the link to mortgage info then you should find it there.

You really do need to dig out that paperwork as you may need to provide it as backing to your claim should you make one. I know I was told by an IFA that the investment 'pot' holding my endowment was one of the poorest performing ones at the time I claimed and anything would be better than keeping the policy.

I hope you manage to sort this one out.

Crazy_Saver

This one is for dunstonh and any other honest IFAs out there.

I only have my own experience and that of friends, family and colleagues to base my opinions and views on, so I would love an honest view from those in the financial world.

Since becoming a member of this site I have learned an awful lot and am now aware that when endowments first became popular, they performed well and seemed like an ideal method of creating funds to pay off a mortgage.

Unfortunately, the markets became "shaky" and endowments began to under perform, leaving many policies short of their target amount.

No-one predicted this downturn and many were caught out, including many financial advisors.

What I don't understand is why the story never ended there? Why didn't the financial industry stop advising borrowers to take out endowments?
I have never(in my own personal experience) heard of an example where an advisor has contacted the policy owner as soon as the situation became clear to advise of the best action to take. I'm sure that the IFAs and FAs were aware well before the policy owners began to get warning letters.

I also still don't understand why the government never stepped in to support those with policies falling tens of thousands of pounds short of their target!

After all that though, my main question is......................

Do those in the financial industry really believe that the majority of people that took out endowment policies from the 90s onwards really were advised correctly and were made fully aware that there was a very real risk that their mortgage may not be paid in full if the endowment was to be the only repayment vehicle.

I appreciate that there were honest advisors, but can the industry or at least the advisors on these boards say with their hands on their hearts that most of us with no real idea of the financial world knew that we were taking a risk and that we were aware that our endowments may not reach target?

Of all the people I have known over the years who have had mortgages, I don't think most of them ever fully appreciated what goes on in the background. I'm sure most of them didn't realise that their money was being invested in different "pots", and in all honesty why should they? I won't harp on about trust etc., but it's only since our endowment problem arose that I have made a conscious effort to try and understand exactly what is happening.

I know that in the 90s the advisor that talked us into surrendering two original policies (one with a guaranteed sum) and then sold us another one never even made us aware that we could have kept the original policies for our new home and she certainly didn't tell us that there was any risk involved with the new policy.

I know that not all advisors were like her, but do you guys really think she was part of the majority or minority?

dunstonh

What I don't understand is why the story never ended there? Why didn't the financial industry stop advising borrowers to take out endowments?

Endowments didnt start to fail until around 2000. Most had stopped selling by 1998. (always some stragglers that are slow to react though).

I have never(in my own personal experience) heard of an example where an advisor has contacted the policy owner as soon as the situation became clear to advise of the best action to take. I'm sure that the IFAs and FAs were aware well before the policy owners began to get warning letters.

Tied agents arent normally allowed to recommend cancellation of a product as its not within their remit. IFAs often do but even now you get some that are wary of recommending cancelling plans as that too is a recommendation. Also, back the 80s and 90s adviser turnover was much higher. Over half of new advisers dont last 2 years.

Do those in the financial industry really believe that the majority of people that took out endowment policies from the 90s onwards really were advised correctly and were made fully aware that there was a very real risk that their mortgage may not be paid in full if the endowment was to be the only repayment vehicle.

Yes. As it wasnt really clear until around 97/98 that the product was dead those done back in the early to mid 90s were done on good faith. They were usually done with target growth rates of around half those used in the late 80s. Plus charges had come down a little. However, the events of 2000 onwards were the real damaging times. You couldnt see that back in 95 say.

Of all the people I have known over the years who have had mortgages, I don't think most of them ever fully appreciated what goes on in the background. I'm sure most of them didn't realise that their money was being invested in different "pots", and in all honesty why should they? I won't harp on about trust etc., but it's only since our endowment problem arose that I have made a conscious effort to try and understand exactly what is happening.

Most people didnt care back then and to be honest, even today you get loads of people that you try to explain things to and they dont want to listen. You put it in writing and you know its never read.

I know that not all advisors were like her, but do you guys really think she was part of the majority or minority?

The figures will vary. Sales reps will be higher with mis-sales. Advisers will be lower. The problem is that the FSA has muddied the water with sales reps and advisers and knowing the difference. That is why advisers have been pushing for years for a distinct difference between them. We nearly got it as well as in the last but one proposals for changes the FSA said it would allow a distinction with sales reps not being able to use the term adviser. However, they backed down from that stating it would be against EU law.

Crazy_Saver

dunstonh wrote: »

The figures will vary. Sales reps will be higher with mis-sales. Advisers will be lower. The problem is that the FSA has muddied the water with sales reps and advisers and knowing the difference. That is why advisers have been pushing for years for a distinct difference between them. We nearly got it as well as in the last but one proposals for changes the FSA said it would allow a distinction with sales reps not being able to use the term adviser. However, they backed down from that stating it would be against EU law.

Just checked her out on google, she's definately an advisor although she has moved to a different company since my complaint began.

Oh no, I'd hate to think that maybe I've stirred up a bit of a hornets nest about her and she's had to leave.

Meeow;)

mayb_2

I know this question was aimed at other IFAs Crazy Saver but the temptation to respond to dunstonh was just too much for me.

I would be interested to see how others respond to your questions - I think I can say that I am with your take on this all the way.

It may have been 2000 when the products started to actually fail dunstonh but it was a long time before that that the finance industry knew that the endowments they were selling didn't have a hope of meeting target let alone producing a bonus for anyone. This was particularly the case with low start endowment packages. This information came from the FSA website.

I believe it was the Chairman of the FSA at the time also who stated that many more of these policies were sold in the late 80's early 90's when the facts were known.

That would indicate that those selling them (tied or not) were unlikely to have explained the facts to the consumer or why would the consumer would have bought them in face of the fact they wouldn't work.

I also asked the question of my insurance agent at the time as to what the chances were of our mortgage failing, as it had been in a national paper that some had failed, the response was this was very unlikely to happen to anyone as their would be public outcry if people's mortgages were at risk of not meeting target. (my mortgage endowment was not with this company).

I was also advised by the company who did have my mortgage endowment policy that if I paid them more from that point on I would be ok. So reluctantly I did that only to find that after a year of this the shortfall had grown dramatically larger.

I refuse to believe I am the only person mislead by this company in this way.

The more interesting aspect of this question is why the government stepped in in the way they did by setting up the system for claiming redress. Leaving the burden of proof with the consumer rather than with the finance companies The answer is the same as for why they stepped in to support the banks now. They need to protect the finance industry from loss of confidence now as they did then. This is not to help the consumer. One thing remains the same it is the man in the street who is carrying the cost again. Perhaps when we finally own all of these failing banks we will get a better deal from them??

dunstonh

Just checked her out on google, she's definately an advisor although she has moved to a different company since my complaint began.

Sales reps are allowed to call themselves adviser. Thats the problem. The public dont have a chance of telling the difference.

It may have been 2000 when the products started to actually fail dunstonh but it was a long time before that that the finance industry knew that the endowments they were selling didn't have a hope of meeting target let alone producing a bonus for anyone. This was particularly the case with low start endowment packages. This information came from the FSA website.

I disagree. Many lowered the target growth rates required and you often see 4 or 5% used as target growth rates. Over the long term it is fair to accept they will hit target. That said in that same era you still came across 11 or 12% target growth rates and they didnt have a hope (funnily enough mostly from a large salesforce).

I believe it was the Chairman of the FSA at the time also who stated that many more of these policies were sold in the late 80's early 90's when the facts were known.

It was the FSA that caused a lot of the problems by setting projection rates. So, its a bit rich for them to come back later and say its wrong. If the failures didnt start until the 2000s then anyone claiming they knew back in 1990 is just not telling the truth.

The more interesting aspect of this question is why the government stepped in in the way they did by setting up the system for claiming redress.

The Govt has not stepped in at any point. The FSA decided the redress method after consultation. The best method was not agreed but given the concerns over a number of insurers possibly failing, it was based on the events back then.

Crazy_Saver

dunstonh wrote: »

Sales reps are allowed to call themselves adviser. Thats the problem. The public dont have a chance of telling the difference.

She worked for a firm of financial advisors. I would name them but not sure if I should.

I disagree. Many lowered the target growth rates required and you often see 4 or 5% used as target growth rates. Over the long term it is fair to accept they will hit target. That said in that same era you still came across 11 or 12% target growth rates and they didnt have a hope (funnily enough mostly from a large salesforce).

Guess which bracket mine falls into:p

Yep! It was called a low cost endowment policy with target growth rates of 7-10.5% in 1991.
Although by the time we sold it in 2008 they had dropped to 3 -5%.

Why me eh?

mayb_2

Or me Crazy Saver!!

The Government was instrumental in setting up the FSA, and within its remit, as I have said before, is to protect the finance industry from loss of confidence.

These are quotes from the FSA taken from their website:

We were given four specific, and equal, objectives by Parliament. These are: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.

The Chancellor of the Exchequer announced the reform of financial services regulation in the UK and the creation of a new regulator on 20 May 1997.
The Chancellor announced his decision to merge banking supervision and investment services regulation into the Securities and Investments Board (SIB). The SIB formally changed its name to the Financial Services Authority in October 1997.

.............................................
In addition, the legislation gives us some new responsibilities – in particular taking action to prevent market abuse.
In October 2004, following a decision by the Treasury, we took on responsibility for mortgage regulation. In January 2005, to implement the Insurance Mediation Directive and in accordance with a Government announcement in 2004 we took on regulation of general insurance business.

The FSA is the set within the hand of Government and the FSA is answerable to the Government as recent events have shown. It is unlikely that the FSA would take action that had not been approved by the treasury and not in line with its remit.