Endowment Guarantee. Worthless ?

bugeyed

Hi
I have just received a letter from scottish life, telling me that my endowment will not meet the value it was originally taken out for. I changed my mortgage to a repayment some time ago to deal with the likelyhood that it would fail, butthis latest letter has a new twist. My endowment was "Guaranteed" to pay the value of the original mortgage, but now they tell me that the guarantee is only valid if I follow their advice - which surprise surprise is to quadruple my monthly payments ! I don't call this a guarantee - just advice. But they say that if I don't do this, then my guarantee will be void. So - what are they guaranteeing ? Has anyone posted anything similar I should read that directly refers to the guarantee of an endowment. Surely this is mis-selling. Problem is, my financial advisor (independant-sic) has gone out of business. Do I have any legal grounds here ? Any help for this newbie would be greatly appreciated :beer:

dunstonh

My endowment was "Guaranteed" to pay the value of the original mortgage, but now they tell me that the guarantee is only valid if I follow their advice - which surprise surprise is to quadruple my monthly payments ! I don't call this a guarantee

A repayment mortgage is only guaranteed to repay the mortgage if you increase your payment when the lender tells you to.

Indeed, had endomwents increased their contributions when interest rates dropped, there wouldnt be the problem there is now. Most endomwents had the facility to do this. They just didnt use it.

Surely this is mis-selling.

You will get nowhere on that front. Stick to conventional complaint reasons.

If you bought the product after regulation came in then you put your complaint to the FSCS and spend the next year or two waiting for the outcome.

bugeyed

Many thanks for the advice. I will try what you suggest. Fingers crossed. When I originally asked about compensation I was told that as my financial advisor was out of business, I was stuffed. Still feel that the guarantee was a con as it was never explained to me that this would require me to up my payments, and seems to me that this isn't a guarantee, more a promise to keep me paying the necessary amount. A guarantee to payout the amount needed surely is just that. The word guarantee seems to have been misused here. Thanks for taking the time to help :T

vinno65

dunstonh wrote:

A repayment mortgage is only guaranteed to repay the mortgage if you increase your payment when the lender tells you to..

Dunstonh come on now! A lender will only tell you to increase your payment on a repayment mortgage if the interest rate changes. People understand this and expect it. A lender will not just make you pay more. Indeed if you do pay more than required each month then the money owed will go down faster and consequently your mortgage will be cleared quicker saving you money in the long run.

dunstonh wrote:

Indeed, had endomwents increased their contributions when interest rates dropped, there wouldnt be the problem there is now. Most endomwents had the facility to do this. They just didnt use it...

Why should people increase their endowment premium when they were told at the outset that so long as they paid the quoted premium each month not only would their mortage be paid off but they would also have a nice "tax free nest egg" at the end of it too!! And anyhow when interest rates did start to fall how many IFA's and firms contacted the poor punters to advise them of this imaginative new plan?!!!

you could't make it up!

regards Vinno

dunstonh

Dunstonh come on now! A lender will only tell you to increase your payment on a repayment mortgage if the interest rate changes. People understand this and expect it. A lender will not just make you pay more. Indeed if you do pay more than required each month then the money owed will go down faster and consequently your mortgage will be cleared quicker saving you money in the long run.

So, when the interest rates change, the lender requires you to change your payment to ensure the mortgage is repaid at the end of the term. The same applies to endowments. When returns dropped following the change in the economic cycle, if premiums had gone a bit (wouldnt have taken much) whilst mortgage payments went down, then there wouldnt be the shortfalls.

This option was written in to virtually all endowments but very few activated it.

Why should people increase their endowment premium when they were told at the outset that so long as they paid the quoted premium each month not only would their mortage be paid off but they would also have a nice "tax free nest egg" at the end of it too!!

Why should people alter their mortgage payments either? Because times change.

And anyhow when interest rates did start to fall how many IFA's and firms contacted the poor punters to advise them of this imaginative new plan?!!!

Seeing as the majority of endowments werent sold by IFAs, I dont see why you choose to highlight them. However, many have been active in dealing with it. Indeed, many of the claims companies are ex advisers.

you could't make it up!

If you chose not to bury your head in the sand and look at how and why it happened you would understand it a lot better than you do.

There is a plane crash program on television that always says that accidents are never down to just one thing happening but a string of events. That is what happened with endowments. There was a string of events that caused them to fail and had action been taken at various stages that would not have happened.

For example, someone that has seen their mortgage payments drop by £150 a month because of the changes in economic cycle wouldnt have minded putting up their endowment by £25pm because the changes that aided interest rates to drop were detremental to endowments.

vinno65

dunstonh wrote:

For example, someone that has seen their mortgage payments drop by £150 a month because of the changes in economic cycle wouldnt have minded putting up their endowment by £25pm because the changes that aided interest rates to drop were detremental to endowments.

They wouldn't have minded if the nature of endowments had been explained to them at the point of sale and they were fully aware that endowments were reliant on stock market returns and were prepared to accept such a risk. If as in mine and i suggest the majority of other sales you were told that as long as you paid the set premium every month then your mortage would be paid and you would have a lump sum at the end, then you would be mightily !!!!ed off at being asked to pay more each month.

Like a fool i put my premiums up (nearly double) to make up the projected shortfall.Guess what happened? Thats right two years down the line I recieved anothe shortfall warning!!

Also supposing interest rates had stayed high but the stock market still crashed what would be your suggestion then?

regards Vinno

p.s any chance of you answering the post in the "act now on miss-selling thread?

maninthestreet

Dunstoh - you seem to be badly confused - you don't seem to understand the difference between the interest re-payment on a mortage, and the capital repayment of the mortage. The difference between a repayment mortgage and an endowment mortage is that with the latter you never make any capital repayment until the last day of the mortgage, when you pay the off the entire capital using the proceeds of an investment policy set up in tandem when the mortage was started, and that the mortgagee has been paying into every month for the life of the mortgage. With a repayment mortgage, you pay off a little of the capital each month, and at the end of the mortgage life, the entire capital has been paid off. Under a repayment mortage the mortgagee will never be asked to increase the monthly capital repayment (assuming no additional borrowing) - the mortage is guaranteed to be paid off at the end of the mortage life, with no nasty suprises along the way in being asked to increase monthly capital repayments. This is not the case with an endowment mortgage, whereby there is no guarantee that the investment policy will be able to pay off the capital at the end of the mortgage, and that the mortgagee may well be asked by the endowment provider to increase his monthly payments to make up for any potential shortfall. I'm in this position myself, and the very last thing I would ever do is
to put even more money into a already failing investment scheme.

dunstonh

Under a repayment mortage the mortgagee will never be asked to increase the monthly capital repayment (assuming no additional borrowing) - the mortage is guaranteed to be paid off at the end of the mortage life, with no nasty suprises along the way in being asked to increase monthly capital repayments.

Interest rate changes still require the monthly repayment to change though. Unless you make those changes, the mortgage is not guaranteed to be repaid. Rate of return changes on investments should have seen the endowments react to that rather than bury their head in the sand.

Also supposing interest rates had stayed high but the stock market still crashed what would be your suggestion then?

Wouldnt have been a problem as the stockmarket crash isnt the main problem. Thats a short term blip which to many is a benefit. Not a negative.

High interest rates would indicate inflation wasnt under control and endowments were priced and set up to work best in a boom/bust, higher inflation economy. That is why they always used to pay a surplus in the past. The move to a lower inflation, more stable economy is where the biggest damage was. Of course, the increased tax burden hit them, as well as the increased solvency requirements and the revised accountancy standards. Some also suffered when they realised that they had let the marketing men take over and it was too late to bring it back into control. Pearl had a product that for every pound of income, it was costing them £1.16. Crazy but it happened.

p.s any chance of you answering the post in the "act now on miss-selling thread?

No. I have given up on that thread. I see little point posting on it. I prefer to look at the reasons why these things happened. If you understand where it went wrong you can change things for the future. Some of the people just want to point fingers and vent and I am not interested in that and dont want to discuss.

maninthestreet

Dunstoh - you seem to be badly confused - you don't seem to understand the difference between the interest re-payment on a mortage, and the capital repayment of the mortage. The difference between a repayment mortgage and an endowment mortage is that with the latter you never make any capital repayment until the last day of the mortgage, when you pay the off the entire capital using the proceeds of an investment policy set up in tandem when the mortage was started, and that the mortgagee has been paying into every month for the life of the mortgage. With a repayment mortgage, you pay off a little of the capital each month, and at the end of the mortgage life, the entire capital has been paid off. Under a repayment mortage the mortgagee will never be asked to increase the monthly capital repayment (assuming no additional borrowing) - the mortage is guaranteed to be paid off at the end of the mortage life, with no nasty suprises along the way in being asked to increase monthly capital repayments. This is not the case with an endowment mortgage, whereby there is no guarantee that the investment policy will be able to pay off the capital at the end of the mortgage, and that the mortgagee may well be asked by the endowment provider to increase his monthly payments to make up for any potential shortfall. I'm in this position myself, and the very last thing I would ever do is
to put even more money into a already failing investment scheme.

vinno65

dunstonh wrote:

No. I have given up on that thread. I see little point posting on it. I prefer to look at the reasons why these things happened. If you understand where it went wrong you can change things for the future. Some of the people just want to point fingers and vent and I am not interested in that and dont want to discuss.

Hi Dunstonh,
I wasn't pointing fingers in my post i just wanted you to asnwer a question, you keep pointing out that endowments are cheaper per month than a repayment mortgage and that this is a good thing. I was just wondering how aech mortgage compares on total outgoings over the 25 year term taking say an average interest rate of 8%

Also as chief cheerleader for the "endowments aren't that bad team",you're fond of mentioning firms that are paying out with surplusses, I was just wondering what your thoughts were on the recent moneymail article.
http://www.thisismoney.co.uk/mortgages/endowments/article.html?in_article_id=417463&in_page_id=55.

Just to say again I am not finger pointing I have said in previous posts that I'm sure many IFA's did their jobs well but what you have got to appreciate is that most people were sold their endownets in building society and bank offices by tied advisors and their experience is completely different.

regards Vinno

vinno65

dunstonh wrote:

No. I have given up on that thread. I see little point posting on it. I prefer to look at the reasons why these things happened. If you understand where it went wrong you can change things for the future. Some of the people just want to point fingers and vent and I am not interested in that and dont want to discuss.

Hi Dunstonh,
I wasn't pointing fingers in my post i just wanted you to asnwer a question, you keep pointing out that endowments are cheaper per month than a repayment mortgage and that this is a good thing.The impression you like to give is that endowments save you money so I was just wondering how each mortgage compares on total outgoings over the 25 year term taking say an average interest rate of 8%

Also as chief cheerleader for the "endowments aren't that bad team",you're fond of mentioning firms that are paying out with surplusses, I was just wondering what your thoughts were on the recent moneymail article.
http://www.thisismoney.co.uk/mortgages/endowments/article.html?in_article_id=417463&in_page_id=55.

Just to say again I am not finger pointing I have said in previous posts that I'm sure many IFA's did their jobs well (as you yourself must have done to have no complaint cases to answer) l but what you have got to appreciate is that most people were sold their endownets in building society and bank offices by tied advisors and their experience is completely different.

regards Vinno