Selling an Endowment? Recommendations? Timescales?

Bigun28

I currently have a L&G unit linked endowment plan for £46750, costing £140 per month, that is due to mature in Dec 2011. Current projections on maturity are:

4% - £35100
6% - £38000
8% - £42000

Current policy value is £19633.40, with a surrender value of £20604.94 (takes into account units added and apparently there is no penalty for surrendering).

The endowment is no longer secured against any property or mortgage (as I now have BTL mortgages on other properties secured with other life assurance policies). And given the performance thus far, and the projected shortfall, I looking to either surrender it or sell it, possibly using it as a deposit on another BTL property.

Can anyone recommend a good endowment buying company or TEP? Did a search on Google and came up with quite a list, but which ones are good?

Also, can anyone give me an idea of the timelines involved and what sort of return they got when they went through the selling process?

dunstonh

You cannot sell a unit linked endowment. It has a daily value and there is no reason for someone to buy it.

And given the performance thus far, and the projected shortfall, I looking to either surrender it or sell it, possibly using it as a deposit on another BTL property.

As it happens, its probably beaten BTL in the last 3 years and has better ongoing potential than a BTL at this time.

A review of funds and switching the portfolio about within the endowment may be a much better option. What funds are you in currently?

Bigun28

Thanks for the advice. Don't really understand how a unit linked endowment works when compared to a with profits fund. Hence, looked at the projected returns, saw the poor performance and was looking to sell/surrender to use in BTL.

Was planning to use the sell/surrender total as a deposit for a BTL on the thinking that, say buying a house at £150K with say 80% LTV and renting at 125%+ mortgage payment (I have 2 BTL houses already on the same estate), in 5 years time, the property value would have hopefully increased sufficiently to give me a significant profit value to possibly reinvest again. Would still keep the BTL property on (long term investment plan). Keeping the endowment on for the remaining period, assuming a 5% projection, would only give me about £36.5K in about 5 years time.

OK on paper, keeping the endowment on may give the larger % growth (please correct me if I am wrong), but my thinking is that a £20K deposit today may equate to a £36K deposit in 5 years time in the housing market - thinking that buy a 2 bed now with £20K deposit or a 2 bed in 2012 with a £36K deposit.

Looking at your last statement, to be honest, I'm not sure what funds L&G have put the plan into, or if it is possible for me to switch the funds around within the endowment. I thought all that was co-ordinated on my behalf by L&G.

Any advice?

dunstonh

Hence, looked at the projected returns, saw the poor performance and was looking to sell/surrender to use in BTL.

We had a stockmarket crash in 2001-2 which is in recovery. Unit prices dropped and your values dropped. Since then its been in steady recovery and assuming L&G managed fund, that has made 20.8% in the last 12 months, 14.90%p.a. average over 2 years and 15.73%p.a. over 3 years. If you then include stockmarket crash you are looking at 4.65%p.a. over 5 years.

Unit Linked endowments are generally better than with profits.

OK on paper, keeping the endowment on may give the larger % growth (please correct me if I am wrong), but my thinking is that a £20K deposit today may equate to a £36K deposit in 5 years time in the housing market - thinking that buy a 2 bed now with £20K deposit or a 2 bed in 2012 with a £36K deposit.

Property is very high above the long term average and historically whenever that happens you get a price crash or a period of no growth. The same applies to stockmarkets generally. Property is volatile and just because we have seen prices upto beginning of last year had doubled in 5 years, doesnt mean they will again. Equally stockmarket investments have doubled in the last 3 years. Both go up, both go down.

Looking forward, people are already beginning to struggle to afford mortgages. All it will take is a percent or two increase in interest rates and many of these people who have done buy to lets will not be able to afford two mortgages. They will have to sell up. That will create a flood of properties onto the market and with an oversupply of properties, the prices go down. Prices dropped significantly in the 90s and put loads into negative equity. It can happen again and it will happen again. We just dont know when.

So, that £20k deposit may be 36k in 2012 or it could be 15k. Crystal ball job!!

Looking at your last statement, to be honest, I'm not sure what funds L&G have put the plan into, or if it is possible for me to switch the funds around within the endowment. I thought all that was co-ordinated on my behalf by L&G.

L&G do nothing apart from what you tell them. If you are not telling them which funds you want to switch to or invest in, they will leave it where it is, even if it is the worst fund there is.

If you were to buy that property, would you view it first? research the area, the potential rental income? expenses, potential etc? The same applies to investments and equally as much to an endowment.

People may have 40k in a pension or an endowment but they do not keep an eye on it and make sure its doing the best for them. Yet if they have 40k they want to invest and its cash (as in building society, ISA, unit trusts, bonds etc), then they do take an interest. For some reason endowments and pensions do not get treated as investments. A switch of funds can often turn the fortunes of an endowment right round.

Bigun28

dunstonh

Thanks for your honest advice and time. Now understand what unit linked is when comparing to with profits endowments.

It can be a difficult choice to make as to where to put the money (crystal ball job I agree!!). I know the property market is volatile. I lost about £25K on a property value over the last 3 years on a 4 bed rental property in Wiltshire due to dropping prices in the area. Hence, recently sold that to invest in BTL elsewhere with hopefully better growth prospects.

Ref the new properties I discussed, all the properties are on an estate currently being built. I've just bought 2 (due to be finished in 2 weeks) after researching the potential growth of the area and the rental/investment return. The 3rd house is exactly the same and about 100 meters away from these 2, and I'm in a position to negotiate a big reduction on price as I did with the first 2. Hence looking at the potential of surrendering the endowment to give the deposit.

I got to admit, I wasn't aware that I could advice L&G over where to invest my money, so greatly appreciated the insight from yourself. Talking with some friends, they too weren't aware that this was possible. Hence your last point about about endowments and pensions not being treated (or seen?) as investments is painfully true.

This does raise an interesting point though. Seeing how many people are jumping on the mis-selling bandwagon, I wonder if they were all aware that they could have advised their endowment companies of how and where to invest?

EdInvestor

I'm afraid I don't find either of these alternatives particular attractive.

If you cashed in the endowment and put it on deposit @4% also paying in the premiums until maturity, you should end up with 34,365 for a guaranteed cash investment.

The projection on the unguaranteed risk based endowment @4% is almost the same - there's no risk premium over cash at all.This is because old-style high charges and life cover (which you may not need) are eating into your returns.

On the other hand re buying another BTL, eggs and baskets come to mind. And so do the poor yields currently available in most places along with the poor capital growth likely ( especially with new build property).

Quite frankly the risk of holding both these investments is not likely to be compensated for by the appropriate higher returns IMHO.I would thus cash in the endowment and put half of it in a high interest cash account and the other half in a better (lower cost, higher return) way of investing in the stockmarket ( funds, shares, investment trusts).

Adjust the percentage split depending oin how you feel about risk.

You can get 7k of the money protected from tax in an ISA p.a. It will make a nice basis for growing your long term retirement cash and shares hoard to go alongside your "property pension", so to speak.

It's always very useful to have income that's not taxed, as well as some that is.

lynn100

Help!
Can you please help me? I have a with profits endowment policy which I want to sell with Norwich Union and I have been offered £7,000 for my policy by a broker and Norwich Union have offered me £6,243. I also have a unit linked policy with Friends Provident who have offered me £7,818.00. Can you advise me of a good website to look up that will give me a cross section of broker's to sell my policy to or whether there is a website with I can offer it to a number of brokers and sell it for the best price? I look forward to your kind reply.

dunstonh

You cannot trade a unit linked endowment. They have a daily value so there is nothing of interest to a buyer. The upside though is that unit linked endowments should perform better over the term and providing you have a decent fund spread, you should hit target with them if the funds perform within their potential.

lynn100

Morning

Thank you for your reply re unit linked funds!!

Can you please advise me of a website that I can sell my Norwich Union endowment to for the best price?

Thanks Lynn

dunstonh

Google tends to throw up the usual names in TEPs. A company has to be FSA authorised to deal in TEPs so any of them should be fine. Obviously, service is not something you are going to know about until you try them out. No harm trying a few though.

NU With Profits should be in demand. Particulary if its a CGNU with profits fund, which is quite desirable. If its a Provident Mutual with profits fund, you may not get many takers. (NU have bought many companies over the years and some NU funds are better than others).

EdInvestor

Try this

http://www.tepexchange.com