WHY are my endowments underperforming?

dunstonh

That's why I said "its average value over the last 20 years".

Its not priced on average either. You have to factor two 40% crashes in the past 10 years and no real crashes in the 10 years prior to that. How about the move from equities to bonds/gilts following the dot.com crash. Most life companies never recovered.

And MIRAS did apply to repayments as well. So it was a lie.

It was not a lie. When the mortgage fell under 30k (or more with Double MIRAS) then you started to lose the tax benefit.

It was rubbish. The tactic two of them used was to draw a graph and imply if I moved after 5 years, with a repayment I would effecively have to start again and be back to 25 years. This was utter bull.

The tactics of of them 20 years ago out of the hundred thousand odd that were around back then are not representative.

zagfles

dunstonh wrote: »

Its not priced on average either. You have to factor two 40% crashes in the past 10 years and no real crashes in the 10 years prior to that.

Followed by low equity prices afterwards.

How about the move from equities to bonds/gilts following the dot.com crash. Most life companies never recovered.

If they had to buy bonds/gilts when equities were low then it's an even more crap product than I thought.

It was not a lie. When the mortgage fell under 30k (or more with Double MIRAS) then you started to lose the tax benefit.

Which was irrelavent as MIRAS was well on the road to abolision at the time, and there was no chance of the mortgage being below £30k by then. The double relief only applied to unmarried couples.

The tactics of of them 20 years ago out of the hundred thousand odd that were around back then are not representative.

It was apparently a common lie. Several people I know were spun the same lie.

opinions4u

zagfles wrote: »

Followed by low equity prices afterwards.

Which was difficult to take advantage of post-Equitable Life when regulators required life assurance companies to diversify in to lower risk (lower potential) investments.

If they had to buy bonds/gilts when equities were low then it's an even more crap product than I thought.

The regulatory changes did create this situation.

Which was irrelavent as MIRAS was well on the road to abolision at the time, and there was no chance of the mortgage being below £30k by then. The double relief only applied to unmarried couples.

At no point prior to its abolition was there any announcement that it was going to be halved or abolished. Yet both happened.

zagfles

opinions4u wrote: »

Which was difficult to take advantage of post-Equitable Life when regulators required life assurance companies to diversify in to lower risk (lower potential) investments.

The regulatory changes did create this situation.

At no point prior to its abolition was there any announcement that it was going to be halved or abolished. Yet both happened.

MIRAS was cut several times, starting in about 1991 if I remember correctly. The path it was going on was fairly obvious. Even more obvious than the failure of endowments.

They were an anachronistic product after the mid 80's when the tax relief went - basically they were created to disguise a savings policy as an insurance policy - as the Labour govt of the 70's thought savings were evil and taxed them heavily, whereas insurance was good and gave tax relief. After all that changed and the super-tax on savings and the tax relief on endowments were abolished, all that remained was an inflexible high charge product. Which banks etc pushed because they got lots of commission.

holly_hobby

zagfles wrote: »

Like I said it was in the 1990's I was looking for my mortgages. And MIRAS did apply to repayments as well. So it was a lie.

Yes but you only recieved MIRAS (fully revoked 2000) on the interest element of the mortgage repayment - so obviously if you held a repayment mortgage, you over the entire term reduce the capital element, so therefore would also be charged less interest, and obviously would receive less benefit from the MIRAS scheme. (as prev stated no one knew when MIRAS was to be abolished until right on the money - so to assume it would run for the life of the mortgage was not unreasonable). So maximum MIRAS benefit would be achieved under an I/O mge, but was not exclusive to it.

This combined aspect, combined with invariably lower monthly costings on an endowment mortgage than a compariable C&I with a DTA, made them very attractive to the consumer from a costings point of view.

zagfles wrote: »

It was rubbish. The tactic two of them used was to draw a graph and imply if I moved after 5 years, with a repayment I would effecively have to start again and be back to 25 years. This was utter bull.

Not quite I'm afraid, unless from initially effecting your C&I mge you maintained the same term, thoughout all your subsequent moves (and if applicable mortgage increases).

More so, if each time you moved you started a 25 yr term again for affordability, (or extended the new mge term, to the longest period available with regards to NRA), then this would certainly cause the issue. And before you say, this wouldn't occur, it certainly did, I witnessed it on numerous, numerous, occassions.

So unfortuantely this fact is not "bull" as you put it, rather the opposite in fact - but I wouldn't expect you to be aware of this.

zagfles wrote: »

Quite a lot of wrong things become right if you change just one word. Like "10 years ago the FTSE was higher than now" is wrong. Change "higher" to "lower" and it's right!

The pooled contributions and underlying funds in LCEs were not ALL based in equities, thats were a lot of the problems came for Providers, whereby their fund managers made over provision in low risk mediums to secure growth and in some cases failed to have sufficient diversification within the fund, which together with other complexities in effecting the switching of asset classes, market conditions, essential provision etc .. etc.. etc..( all already discussed at length), explains how we arrived at the point we are today (have been fo last 10 yrs + to be honest).

It must be understood that no provider acitvely sought to both expose themselves to mortgage endowment mis-selling claims, or the backlash of the returns under the plans, closure to new business and selling of life books - simply to exploit the laymans lack of knowledge and bask in the fees until they were exposed, to say or imply otherwise is utter, utter madness.

In hindsight yes the underlying basis, and the prescribed growth rates used to predict returns were flawed, but no responsible adviser or provider, would have ever marketed them or recommended them, had we known then what we know now. That growth would be much lower than previous yrs, that we would enter low interest rates and stagnant return, or that the bottom would fall out of the economy - to have done so would have made you prime material for a straight jacket and stay in secure wing, its not only the layman who has held endowment mortgages but advisers too - and we are all in the same boat - I understand that there has to be "someone" to blame, but please lets be objective about it .

Hope this helps

Holly

zagfles

holly_hobby wrote: »

Yes but you only recieved MIRAS (fully revoked 2000) on the interest element of the mortgage repayment

Well, obviously. I do know what the I in MIRAS stood for.

- so obviously if you held a repayment mortgage, you over the entire term reduce the capital element, so therefore would also be charged less interest, and obviously would receive less benefit from the MIRAS scheme. (as prev stated no one knew when MIRAS was to be abolished until right on the money - so to assume it would run for the life of the mortgage was not unreasonable).

Would it? When it was reduced several times since 1991? It was obvious to me that MIRAS would be very unlikely to exist by the time my repayment got to under £30k in 15-20 years. I obviously had much better foresight than those who recommended endowments.

So maximum MIRAS benefit would be achieved under an I/O mge, but was not exclusive to it.

I did consider an I/O mortgage, but definitely not one backed by an endowment.

This combined aspect, combined with invariably lower monthly costings on an endowment mortgage than a compariable C&I with a DTA, made them very attractive to the consumer from a costings point of view.

Except it didn't guarantee to pay the mortgage off. In fact the quotes I got for endowments were about the same as a repayment even with the discount they offered for the endowment for the first year. So the repayment was cheaper overall and did guarantee to pay the mortgage off.

Not quite I'm afraid, unless from initially effecting your C&I mge you maintained the same term, thoughout all your subsequent moves (and if applicable mortgage increases).

The point they made was that you would have to start again, and would have hardly paid off any capital. They didn't mention that the capital you'd have paid off after 5 years would almost certainly be more than the endowment would be worth at that time, after they'd taken the first year or two's premiums in charges.

More so, if each time you moved you started a 25 yr term again for affordability, (or extended the new mge term, to the longest period available with regards to NRA), then this would certainly cause the issue. And before you say, this wouldn't occur, it certainly did, I witnessed it on numerous, numerous, occassions.

So unfortuantely this fact is not "bull" as you put it, rather the opposite in fact - but I wouldn't expect you to be aware of this.

Well I am very, very glad I knew better than the liars who were trying to push an endowment on me. I would be considerably worse off now if I was stupid enough to have believed them.

holly_hobby

zagfles wrote: »

Well, obviously. I do know what the I in MIRAS stood for.

Wasn't sure to be honest ....

zagfles wrote: »

Would it? When it was reduced several times since 1991? It was obvious to me that MIRAS would be very unlikely to exist by the time my repayment got to under £30k in 15-20 years. I obviously had much better foresight than those who recommended endowments.

Or indeed the Chancellor it would appear ...

zagfles wrote: »

Except it didn't guarantee to pay the mortgage off.

Thats quite right, so loss of expectation can therefore not be a cause of complaint.

zagfles wrote: »

In fact the quotes I got for endowments were about the same as a repayment even with the discount they offered for the endowment for the first year. So the repayment was cheaper overall and did guarantee to pay the mortgage off.

Really ? Not from my experience in the 90s when interest rates were quite meaty.

zagfles wrote: »

The point they made was that you would have to start again

Absolute rubbish !! I was not only involved in only advising, but also sales training and competency sign offs - and no adviser said every mge term had to be 25 yrs (or more), if so how would you account for those who were in the mid to late 40s with a mge ceasing at NRA ?

zagfles wrote: »

and would have hardly paid off any capital. They didn't mention that the capital you'd have paid off after 5 years would almost certainly be more than the endowment would be worth at that time, after they'd taken the first year or two's premiums in charges.

Not quite, over the first 5 yrs of a 25 yr C&I mge, the underlying capital sum hardly reduces, the in roads really commence after this term.

Whether the reduction would be equal to or in excess of the SV of a LCE (assuming WP) - well that would depend on the level of premium paid, low start, basic, or extra, policy charges (inc LTA(i.e GSA) provision) over the period, and the term of the contract.

zagfles wrote: »

Well I am very, very glad I knew better than the liars who were trying to push an endowment on me. I would be considerably worse off now if I was stupid enough to have believed them.

Yes in hindsight (wonderful thing) you made the right decision for you, if however the policies were now maturing with huge surpluses, would you hold the same opinion ?

Hope this helps

Holly

zagfles

holly_hobby wrote: »

Thats quite right, so loss of expectation can therefore not be a cause of complaint.

What they told me was along the lines of "there's no technical guarantee, but there's really no doubt at all it will pay off the mortgage with a nice lump sum" :rotfl:

Really ? Not from my experience in the 90s when interest rates were quite meaty.

Yup. The endowment would have been a bit cheaper in the first year purely due to the 1% off the interest rate (which they offered as a partial refund for the big commission they get for selling the endowment) but after that is was more expensive.

Absolute rubbish !! I was not only involved in only advising, but also sales training and competency sign offs - and no adviser said every mge term had to be 25 yrs (or more),

So you know what every adviser ever said do you? One "mortgage broker" also told me that there's no way I'd get a mortgage without life insurance. I knew that was a lie as I already had a mortgage without life insurance! Then when it was clear I wasn't interested either in an endowment or any insurance, I only wanted a mortgage, this "mortagage broker" refused to do business with me admitting they didn't get enough commission "just" brokering mortgages!

Not quite, over the first 5 yrs of a 25 yr C&I mge, the underlying capital sum hardly reduces, the in roads really commence after this term.

I know exactly how the capital reduces with a repayment mortgage. I can even quote the formula.

Whether the reduction would be equal to or in excess of the SV of a LCE (assuming WP) - well that would depend on the level of premium paid, low start, basic, or extra, policy charges (inc LTA(i.e GSA) provision) over the period, and the term of the contract.

Well given that you're paying the first year or two's premiums in charges it's very likely to be worth less than you put in after 5 years.

Yes in hindsight (wonderful thing) you made the right decision for you, if however the policies were now maturing with huge surpluses, would you hold the same opinion ?

If I'd wanted an equity savings vehicle for my mortgage I'd have chosen a PEP/ISA or suchlike - not a hugely expensive and inflexible product like an endowment. In fact I did invest in a PEP around that time, still have it (now ISA) and it's vastly outperfomed any endowment. Not surprising really as they didn't take all I put into it in the first couple of years in charges...

holly_hobby

zagfles wrote: »

What they told me was along the lines of "there's no technical guarantee, but there's really no doubt at all it will pay off the mortgage with a nice lump sum" :rotfl:

Got it one - no guarantee - past pefromance is not a gte to future return.

They saying no doubt it WILL pay off ? Well without being present at your each of your appointment, I am not in a position to state whether your statement is correct, a variation on what was said or not accurate at all.

I can confirm that I never used this term, nor did the colleagues I worked with, inc new inductees to my region, whom I trained up to threshold competency. (early to mid 90s)

But of course I cannot speak for the 1000's of advisers working in the industry at that time, before or beyond ... and neither can you.

zagfles wrote: »

Yup. The endowment would have been a bit cheaper in the first year purely due to the 1% off the interest rate (which they offered as a partial refund for the big commission they get for selling the endowment) but after that is was more expensive.

So now your saying that if you took an endowment mge, the mortgage lender offered a preferential rate for the first year ? Even when the endowment and mge may have been placed and sold by individuals who did not work for the provider ? So, you are saying that although the lender did not actually benefit from the sale of a LCE, they still offered "incentives" to "reel them in" so to speak ? Where the hell are you getting all this from ?

zagfles wrote: »

One "mortgage broker" also told me that there's no way I'd get a mortgage without life insurance. I knew that was a lie as I already had a mortgage without life insurance!

Not really, most mge lenders in my experience required life cover in the placement of a mortgage, as both best advice (notwithstanding all your experiences are pre regualtion), and if the individual did not have existing suitable provison, as a protecton for both parties. Suitable life provision being either at least a LTA for an I/O mge or DTA for a C&I mge.

The fact you now appear to claim to have had a mix of LCE backed and pure I/O or C&I (with no life protection) is worrying. In any event, your claim to have effected either a pure IO or C&I mortgage without any life protection in place at all (affording protection of debt repayment & family provision on death), is , A at the time quite surprising on their part, and B rather foolish on yours.

Unless of course you were/are single with no dependants, and had no requirement for the property to form part of your estate on death. Rather preferring the os liability to be left on your estate, with the requirement and responsibility of the property to be effectively sold by those adminstering your estate to redeem it. Nice.

zagfles wrote: »

Then when it was clear I wasn't interested either in an endowment or any insurance, I only wanted a mortgage, this "mortagage broker" refused to do business with me admitting they didn't get enough commission "just" brokering mortgages!

If you were not an existing client, for whom the adviser adminsitered your affairs and financial provison, this is exactly right.

You have to put this in context, do/did you go to work for free (or little wage), as that is exactly what you are inferring the broker should have done for your benefit.

This is why we now have more wide based fee-based advice - its much clearer for everyone, and the broker doesn't suffer on none proceeding cases.

Indeed I have myself been in the situation where a mge & provision had been arranged, with several weeks of work on it, only for the individual to decide they were going to buy their financial provision from another provider. My fee for sourcing a lender, placing the mge, dealing with underwriters, soliciors, 3rd party reps, going in on a Sunday when they could not make a weekday appointment - just a mge procuration fee, which as a main steam lender was low.

zagfles wrote: »

I know exactly how the capital reduces wi, whith a repayment mortgage. I can even quote the formula.

Jolly good.

zagfles wrote: »

Well given that you're paying the first year or two's premiums in charges it's very likely to be worth less than you put in after 5 years.

No, we were talking about the financial situation you would be if you had a 25 yr repayment mge compared to an endowment mge, and where you would be finacially with both if you were to move at year 5.

zagfles wrote: »

If I'd wanted an equity savings vehicle for my mortgage I'd have chosen a PEP/ISA or suchlike - not a hugely expensive and inflexible product like an endowment.

But you did choose endowments ... all 4 of them !-

If you are talking tax efficient vehciles, ISAs weren't around, PEPs were introduced in 1987, later accompanied in 1991 by TESSAs.

Any tax efficient medium also has annual investment quotas as set each yr, so depending on your level of mge - as indeed PEPs and later TESSAs did. Accordingly, they may not have been suitable as a stand alone medium to wholly repay your mge, based on the amount of os mge to capital investment & return achieved on the same over the term.

zagfles wrote: »

In fact I did invest in a PEP around that time, still have it (now ISA) and it's vastly outperfomed any endowment. Not surprising really as they didn't take all I put into it in the first couple of years in charges...

Ah so in 1987 you invested in a PEP. Clearly illustrating that you were not risk adverse or indeed Cautious, at least at the time you purchased your last endowment also in 1987 ?

And indeed infer that having had the foresight, that PEPs would out perform LCEs, you instead would have used PEPs and direct asset backed investments, to support your morgage repayment, instead of mediums such as an LCE.

Thats v interesting, as had your correct ATR been declared to the provider/s who upheld your pre A day LCE sales, which had been based on suitability of the contracts to the risk profile (and not any cited loss of expectation) - I v much doubt you would have got the end result you did. :j

Hope this helps

Holly

zagfles

holly_hobby wrote: »

Got it one - no guarantee - past pefromance is not a gte to future return.

They saying no doubt it WILL pay off ? Well without being present at your each of your appointment, I am not in a position to state whether your statement is correct, a variation on what was said or not accurate at all.

I can confirm that I never used this term, nor did the colleagues I worked with, inc new inductees to my region, whom I trained up to threshold competency. (early to mid 90s)

But of course I cannot speak for the 1000's of advisers working in the industry at that time, before or beyond ... and neither can you.

Err, I'm not claiming to. I'm recounting my experience.

So now your saying that if you took an endowment mge, the mortgage lender offered a preferential rate for the first year ? Even when the endowment and mge may have been placed and sold by individuals who did not work for the provider ? So, you are saying that although the lender did not actually benefit from the sale of a LCE, they still offered "incentives" to "reel them in" so to speak ? Where the hell are you getting all this from ?

At the time most banks and building societies were offering 1% off the mortgage rate if you took out an endowment. This was going direct to them.

Not really, most mge lenders in my experience required life cover in the placement of a mortgage, as both best advice (notwithstanding all your experiences are pre regualtion), and if the individual did not have existing suitable provison, as a protecton for both parties. Suitable life provision being either at least a LTA for an I/O mge or DTA for a C&I mge.

It was a lie. They said I couldn't get a mortgage without life insurance. My previous mortgage was without any life insurance. Within a few weeks of being told this lie, I went on to get another mortgage, without life insurance. This was with Nationwide building society, and the previous mortgage was with the Halifax, ie mainstream lenders, who were perfectly happy to sell mortgages without life insurance. Any broker or adviser who didn't know this was clearly incompetant. But I suspect they were just liars who wanted to sell insurance.

The fact you now appear to claim to have had a mix of LCE backed and pure I/O or C&I (with no life protection) is worrying.

I have only ever had either repayment or pure I/O mortgages. I have never had any investment policy to specifically back my mortgage.

In any event, your claim to have effected either a pure IO or C&I mortgage without any life protection in place at all (affording protection of debt repayment & family provision on death), is , A at the time quite surprising on their part, and B rather foolish on yours.

Unless of course you were/are single with no dependants, and had no requirement for the property to form part of your estate on death. Rather preferring the os liability to be left on your estate, with the requirement and responsibility of the property to be effectively sold by those adminstering your estate to redeem it. Nice.

I was single with no dependants for the first mortgage. For the second my work pension plan easily covered the value of my mortgage. I didn't need life insurance, that was my decision and I wasn't interested in the opinion of any patronising adviser. I'd done my sums, I never wanted financial advice. I only went to this mortgage broker because they promised to pay the solicitors fees if they arranged a mortgage for you. What they really meant was if you take out an endowment - I didn't know that at the time, and presumed they operated through commission for arranging the mortgage, like a car insurance broker.

You have to put this in context, do/did you go to work for free (or little wage), as that is exactly what you are inferring the broker should have done for your benefit.

They described themselves as a "mortgage broker". I went to them to broker me a mortgage. Just like I'd go to a car insurance broker to broker me car insurance.

But they weren't interesting in brokering me a mortgage, only to sell me rip-off endowments and insurances. They should have been honest and called themselves an "endowment broker". Then they wouldn't have wasted my time and their own, as I wouldn't have touched them with a barge pole.

This is why we now have more wide based fee-based advice - its much clearer for everyone, and the broker doesn't suffer on none proceeding cases.

Indeed. And if you don't want advice you don't have it shoved down your throat.

No, we were talking about the financial situation you would be if you had a 25 yr repayment mge compared to an endowment mge, and where you would be finacially with both if you were to move at year 5.

Moving itself makes no difference. If no additional borrowing was required then I simply take on a new 20 repayment mortgage and carry on paying exactly what I was before. If additional borrowing is required I need to either increase my repayments or extend the term. With an endowment you'd probably need to buy a new one, which is what these muppets were presumably hoping for.

But you did choose endowments ... all 4 of them !-

What are you on about? I've made it clear I've never bought an endowment in my life, something which I am extremely smug about.

If you are talking tax efficient vehciles, ISAs weren't around, PEPs were introduced in 1987, later accompanied in 1991 by TESSAs.

Yes, like I said I bought a PEP (though not linked to the mortgage in any way). Then it became an ISA as PEPs were rolled into ISAs.

Any tax efficient medium also has annual investment quotas as set each yr, so depending on your level of mge - as indeed PEPs and later TESSAs did. Accordingly, they may not have been suitable as a stand alone medium to wholly repay your mge, based on the amount of os mge to capital investment & return achieved on the same over the term.

I didn't link them to my mortgage. But there were providers offering "PEP mortgages" at the time.

Ah so in 1987 you invested in a PEP. Clearly illustrating that you were not risk adverse or indeed Cautious, at least at the time you purchased your last endowment also in 1987 ?

What are you on? Are you confusing me with someone else? I never bought an endowment. I bought a PEP in the 90's.

And indeed infer that having had the foresight, that PEPs would out perform LCEs, you instead would have used PEPs and direct asset backed investments, to support your morgage repayment, instead of mediums such as an LCE.

The charges on the PEP was far lower than the rip-off charges on an endowment, so it was a pretty safe bet.

Thats v interesting, as had your correct ATR been declared to the provider/s who upheld your pre A day LCE sales, which had been based on suitability of the contracts to the risk profile (and not any cited loss of expectation) - I v much doubt you would have got the end result you did.

What are you on about?

Hope this helps

No. Frankly;)