I need an Advisor for help with Endowment Redress Calculation

MsH

Hi - I have complained to the company that sold my mortgage endowment and they have agreed it was mis-sold.

They provided a compensation figure assuming I was still with my original mortgage provider using the SVR. However I have had different rates applied and paid off some of my debt therefore am trying to work out if I would be due more if I used the actual figures or if I'm better to stay with the offer provided.

I could use the exasoft software but would rather discuss with a financial advisor. However having tried a few none have dealt with this before or have the software to make this calculation....

Help please - I'm based in Kent but assume this can be done over the telephone and email.

Annisele

Most financial advisers don't deal with redress calculations all that often (and with tongue slightly in cheek - you want to avoid the ones that have!)

Also, Exasoft's licences aren't cheap and so some firms outsource their calculations.

You could try a firm like OAC (I'm not recommending them, just pointing out that they exist).

MsH

Thanks Annisele - though may be being stupid but why would I want to avoid those that have?

Can anyone else help? Even with the question of which way would seem more compensation would be due...

Thanks

dunstonh

though may be being stupid but why would I want to avoid those that have?

The only ones that are likely to have the software are the ones that have had to make use of it.

Can anyone else help? Even with the question of which way would seem more compensation would be due...

I cant remember. However, there would be some very old threads from around 2005-6 that may help if you want to invest time on searching the forum for those.

magpiecottage

I do this sort of calculation - using a spreadsheet which enables me to intervene at any point in the mortgage history that seems appropriate.

In theory, that means I can get very accurate results although digging around to find out exactly how the loan would have worked out takes time (and therefore money!).

From what you say, I think the figure you have is probably inaccurate but the error could just as easily be in your favour and I suspect it is.

TrickyDicky101

Hi Magpiecottage

I realise you are a paid professional but if you had 5 minutes to spare I would be very interested to hear (by reply) how such a calculation might be performed.

Simplistically speaking (and I may well be incorrect here) my understanding is that the compensation would be calculated on the basis of the difference between a traditional repayment mortgage basis vs the interest-only approach of an endowment loan offset by whatever the investment gains at date X are. On this basis (again, might be wrong as haven't worked any figures), what the OP quotes above as the basis of the company's redress calc doesn't sound unreasonable, although the application of early repayment (depending on how it is handled within the calculation) could have a significant impact.

Many thanks for any light you can shed!

MsH

Hello - well I have been having lots of thoughts and still not sure what to do. I can pay for a financial adviser to do a calculation but can't find one that does. So I can use the exasoft calculation but it will cost £50 and if I need any help it costs 90p per minute!!

Can anyone do a comparison say based on £50,000 mortgage based on 7.8% interest rate for both IO and repayment and then the same for a £6% interest rate. I'm usually good with figures but just can't get my head around this...

Of course to make things more complicated I paid my mortgage off over the period of 7 years and not sure how much that will affect the figures...

Or if anyone knows an FA who can provide the service I'm after please let me know

As it looks like I may be losing my job soon the compensation figure will come in very useful so I need to try to make sure I go the right way on this

Thanks

magpiecottage

TrickyDicky101 wrote: »

Hi Magpiecottage

I realise you are a paid professional but if you had 5 minutes to spare I would be very interested to hear (by reply) how such a calculation might be performed.

Simplistically speaking (and I may well be incorrect here) my understanding is that the compensation would be calculated on the basis of the difference between a traditional repayment mortgage basis vs the interest-only approach of an endowment loan offset by whatever the investment gains at date X are. On this basis (again, might be wrong as haven't worked any figures), what the OP quotes above as the basis of the company's redress calc doesn't sound unreasonable, although the application of early repayment (depending on how it is handled within the calculation) could have a significant impact.

Many thanks for any light you can shed!

Sorry - didn't spot this before.

Broadly, you are correct.

The first part of the calculation is to establish the surrender value of the policy and compare this to what would have been paid off a repayment mortgage. This is the capital loss (or gain).

The second part is to calculate the difference between the cost of the interest-only mortgage plus endowment on one side and the cost of the repayment mortgage plus life cover (if appropriate) on the other.

Interest is added to the payments at the lender's interest rate on each. This can be done, as I believe Exasoft does, by calculating the total cost for each method and subtracting one from the other or, as I do, by calculating the difference each month and then rolling up that alone.

I can, as I say, intervene month on month so, for a seven year mortgage, I could put in 84 variations. However, it would cost considerably more than £50 - a firm of Consulting Actuaries I know were, last time I looked, charging £300 plus VAT. I undercut that, but not by £250!

Annisele

I'd be astonished if you could find an IFA who'd run the calc for less than £50 - the figures Magpiecottage quotes (of £300 or so) are more usual.

Broadly speaking, the higher the interest rate the less capital is paid off during the first few years of a repayment mortgage. (To see this, first assume the interest rate is 0% and the term is 25 years - meaning that each year you'd pay off 1/25 of the initial mortgage balance. If you assume the rate goes up a little bit, the amount repaid goes down a little bit).

So, on a 7.8% interest rate the balance of the hypothetical repayment mortgage will be higher than it would have been had the rate been 6% (you'll have paid less off using 7.8% than 6%). So - all else equal - the "loss" you suffered by taking an endowment will be greater if the interest rate was lower.

However, that doesn't help you all that much - the fact that you paid your mortgage off is going to make a significant difference to the calculation.

holly_hobby

The industry (by this I mean FS Providers and FOS) use/d a system called Mortgage Fundamentals.

This software is/was operated under licence - and calculates the difference (much as the software noted above does) between the two methods of repayment (including as stated above, diff between reduction in borrowing under a C&I compared to the surrender value of the endowment, and associated difference in costs between endow mge & C&I mge inc cost of DTA for C&I). This is calculated over the term the complainant held their mge on an interest only basis or to the date they switched to C&I.

The diff is the amount of redress you are due & interest.

The mge rates used, are those provided by you to perform the calc, including any reduction in capital (and date) when you say you made from a lump sum payment, and/or the lenders differing svr applied over the term of the mge (rates already pre-loaded into the MF system - but can be manually adjusted by the casehandler ), and use the capital rest period used (i.e daily or annual rest) - rest period just means how interest rate adjustments were made to your mge account.

If you are not happy that the provider has correctly calculated the amount of redress due, and the provider refuses to review, you could refer this matter to FOS - and ask them to check that the redress offered is correct. They will do this using the MF system I have described - which as I say was used by all FS providers & FOS to calc redress under their endowment complaint/review processes.

Hope this is of some help ... (well done by the way on getting the uphold !)

Holly

MsH

Hi - sorry to mislead - I wasn't expecting an IFA to do the job for under £50 - I am authorised to access advice and the company will pay. Just been trying to find someone who does it...

Thanks for all your comments - I think I'll just have to bite the bullet and use the exasoft calculator and hope I don't need to use their phone service!!