Stuck in endowment trap - help!

barbara22

Partner and I are low earners who took out a 100% mortgage and endowment policy late 1990. Have been advised yet again that there is a shortfall on the endowment - tried claiming as it was mis-sold to us (various reasons, doesn't bear going to), claim unsuccessful as we had not reacted to providers initial letter regarding the shortfall because one of the options was to 'wait and see' and now time bar has been applied.

Sorry to ramble, upshot is we still owe slightly more than the original mortgage. We can't afford to pay more or lengthen the term as I am due to retire in 5 years time, three years before mortgage ends. Due to increasing ill health, I will be lucky if I don't have to retire before then anyway.

Only suggestion we have had is to get quotes on selling the endowment to see if the value will cover the shortfall.
We have no savings or other assets to fall back on.

The house is also falling in to a state of some disrepair, as we simply cannot keep up with the cost of maintenance, so we desperately need some advice from anyone else who has been in perhaps a similar situation.

AndyWallace

How much is the shortfall? Could you put the amount of the shortfall on repayment? Have you had quotes for this? Are you paying lenders SVR? Do you get a lump sum when you retire?

Andy

dunstonh

Is it a real potential shortfall or one that is likely to go away over the coming years (or get even worse)?
Who it it with?
What investment funds is it in?
(in addition to Andy's questions).

barbara22

AndyWallace wrote:

How much is the shortfall? Could you put the amount of the shortfall on repayment? Have you had quotes for this? Are you paying lenders SVR? Do you get a lump sum when you retire?

Andy

Thank you for prompt reply - shortfall is approx £14000 and I am supposing we could put this on to repayment, however, surely this would increase our monthly payment? No, we haven't had quotes on anything as yet as we basically don't know where to turn. Ref SVR, I assume yes we are paying on this basis as our monthly mortgage payments vary according to changes in the base rate.

I have a very small pension from years ago which is unlikely to provide any significant lump sum, although I wonder if I could get an estimate on what it actually would be - will enquire, although as I say it wouldn't touch the sides of the shortfall in any case.

Sorry to be so terse, trying not to write an essay as a response. If you have any suggestions, these will be very welcome - thank you.

barbara22

dunstonh wrote:

Is it a real potential shortfall or one that is likely to go away over the coming years (or get even worse)?
Who it it with?
What investment funds is it in?
(in addition to Andy's questions).

As the shortfall is based on current interest interest rates I have no way of knowing whether it will get worse, as rates are slowly rising 'at the moment' it should get better - but who's to know? It is currently with Zurich, although originally from Allied Dunbar. I am sorry, I simply don't know what investment funds it's in - this is part of our problem, we were (very late) first time buyers so we don't have much of a clue about the whole subject. Suspect this is why we were 'easy prey' in the first place!

Again, thank you also for responding so quickly.

AndyWallace

barbara22 wrote:

Thank you for prompt reply - shortfall is approx £14000 and I am supposing we could put this on to repayment, however, surely this would increase our monthly payment? No, we haven't had quotes on anything as yet as we basically don't know where to turn. Ref SVR, I assume yes we are paying on this basis as our monthly mortgage payments vary according to changes in the base rate.

I have a very small pension from years ago which is unlikely to provide any significant lump sum, although I wonder if I could get an estimate on what it actually would be - will enquire, although as I say it wouldn't touch the sides of the shortfall in any case.

Sorry to be so terse, trying not to write an essay as a response. If you have any suggestions, these will be very welcome - thank you.

You could use your investment to repay part of your mortgage and convert the shortfall to repayment over the remaining 8 years.

If your mortgage balance is £40,000 then doing this could cost you around £290 per month with say, the Woolwich. Plus the cost of your investment each month.

If your mortgage balance is £60,000 then it could cost you in the region of £370, again, plus your investment.

You could convert a lesser amount to repayment if you are expecting a lump sum from your pension that you are prepared to repay into your mortgage account.

You could also find a lower rate mortgage too, but I think overall, on this limited information, and the amounts quoted, then the lender mentioned would be suitable.

It is likely that your mortgage payment will increase. However, if you are paying 6.75 - 7% on the majority of your 'interest-only' mortgage balance then the increase may not be that significant.

Andy.

dunstonh

As the shortfall is based on current interest interest rates I have no way of knowing whether it will get worse, as rates are slowly rising 'at the moment' it should get better - but who's to know?

That isnt how it works. However, you are correct that it is not known. Some sensible estimates can be considered though.

It is currently with Zurich, although originally from Allied Dunbar.

Expensive option.

I am sorry, I simply don't know what investment funds it's in

This is the most important bit and luckily Zurich should offer enough funds to build a proper spread with good potential. Even their poorer quality medium risk funds have hit double figure returns for the last 3 years. The betteer quality ones have done twice the figures shown on the projections.

barbara22

Thank you Andy, you are very helpful. Our mortgage balance is approx £34,500 and is with the Woolwich by the way! I assume when you say 'could use our investment to repay part of the mortgage' you mean sell the endowment policy and put this against the mortgage?

Maybe I'm mis-understanding the 'investment' you're referring to - sorry. This leads me to think that the second sentence in your response also isn't making much sense to me, I'm probably being dim.

Ref the pension lump sum, I am reluctant to part with this unless absolutely necessary - it's hard enough to retain any normal life as a pensioner as it is. Also, as I say, it will only be a small amount in any case.

Have thought about lower rate mortgage also, but we would need to make enormously hefty payments on £34500 to clear this in five years, so discarded this idea rapidly.

The reason we don't want the mortgage payments to increase significantly really is because we struggle to meet commitments as it is - major changes in working circumstances in recent years have been a big factor (redundancy - twice for both of us since 2000, leading to our having to accept lower paid jobs).

Please accept my thanks for the advice you are giving - it really is appreciated.

barbara22

dunstonh wrote:

That isnt how it works. However, you are correct that it is not known. Some sensible estimates can be considered though. Seems fair, assume you mean get quotes for selling the endowment?



Expensive option. Wasn't our choice Dunston, this is what was foisted on to us by the since dismissed person who sold us the policy and set up the mortgage for us.



This is the most important bit and luckily Zurich should offer enough funds to build a proper spread with good potential. Even their poorer quality medium risk funds have hit double figure returns for the last 3 years. The betteer quality ones have done twice the figures shown on the projections.

Hope my comments in red above show up - doubt very much we are invested in good quality risk funds if our original seller was anything to go by - surely you only get the level of policy which you were sold in the first place, no matter whose hands it's in now?

AndyWallace

barbara22 wrote:

Thank you Andy, you are very helpful. Our mortgage balance is approx £34,500 and is with the Woolwich by the way! I assume when you say 'could use our investment to repay part of the mortgage' you mean sell the endowment policy and put this against the mortgage?

Yikes! No, no, no, no, no.

Keep the investment going and when it matures you can use this lump sum as originally intended, to repay (all or some of) the capital element of your mortgage. It may be that the maturity value of your endowment increases much more than anticipated in the next few years anyway - who knows? But at least you're giving it a chance to recover. And if it does do better than anticipated now, then you will get the benefit of the additional monies on its maturity.

You could remortgage your property on a part repayment / part interest only basis. You could do £20,000 on interest only and £14,500 on repayment over 8 years. If your current lender will give you their 'retention' rate of 4.98% fixed then your repayments would be in the region of £275 per month, plus the cost of your endowment policy.

As I said earlier, this is likely to be more expensive than what you are currently paying, but you may be able to afford it. I don't know what your circumstances are exactly but would say that a visit to a local adviser may prove to be beneficial.

Hope this helps.

Andy

dunstonh

Seems fair, assume you mean get quotes for selling the endowment?

No. I mean estimates of fund performance based on the funds you are currently invested in. For example a low risk spread would be expected to perform to a lower level than a high risk spread. A bog standard managed fund (balanced managed for example) will give general bog standard (read pretty poor) peformance generally.

surely you only get the level of policy which you were sold in the first place, no matter whose hands it's in now?

With unit linked plans you can switch amongst the funds during the policy life. You may have a duff fund now but there are not all duff and you can alter the spread to suit your risk profile and improve things.