FSCS compensation offer

jgfirehorse

The financial Services Compensation Scheme have agreed I was missold my endowment plan but have offered only £443 in compensation.I cannot make sense of their calculations.

My endowment ran 10yrs and 4 months (124 months) but I converted my mortgage to a capital and interest after 7yrs and 1 month (85 months).

Through the 10yrs 4 months I paid in £4877 and was paid out £4692 when I cashed the endowment in.A loss of £185.

If the endowment premiums paid in and the endowment payment received when cashed in are divided into a pro-rata figure I make £3343 paid in over 7yrs and 1 month and £3216 paid out when cashed it in over same period.A loss of £127.

It is my view that I would have bettered the difference between £127 loss if I had took a capital and interest mortgage out from the start.

The mortage was £26950 and was taken out on the 15th April 1992.This mortgage was converted from interest only to capital and interest on 24/05/99.

My belief is,with capital and interest method of repayment I may have been able to reduce the capital debt by approx £7635;ie,
£26950 / 25yrs = £1078 per yr.
£1078 * 7yrs 1months = £7635.83

If the £3216 endowment pay out is subtracted from £7635.83,I have the compensation approaching a figure more like £4419.83.

I would appreciate any help whatsoever regarding this.

Thanks

John

dunstonh

My endowment ran 10yrs and 4 months (124 months) but I converted my mortgage to a capital and interest after 7yrs and 1 month (85 months).

This is key information as the calculation will only be based on that 7 years 1 month.


So, the position after 7 years 1 month is looked at. In the early years, very little is repaid off a repayment mortgage. Indeed, an endowment could potentially do much better in the early years (which is why frequent movers tended to favour endowments). So, how much would have been reduced off a repayment mortgage in those 7 years 1 month is calculated vs the value of the endowment in that period. The difference is the redress.

Your problem is likely to be that endowments didnt start falling short until 2000 onwards. Your 7 years one month took you to 1999. The value of the endowment in 1999 would likely be heading for surplus. Had you converted to repayment basis say in 2003, then your figure would be much higher.

jgfirehorse

Thanks,I had assumed a capital and interest repayment method would reduce my £26950 loan equally over the term;ie,£26950 / 25 yrs = £1078 capital repayment per year but I have a very vague recollection that this is not how it works!
Thanks again for bring some clarity.

John

Annisele

jgfirehorse wrote: »

Thanks,I had assumed a capital and interest repayment method would reduce my £26950 loan equally over the term;ie,£26950 / 25 yrs = £1078 capital repayment per year but I have a very vague recollection that this is not how it works!

You're right, unfortunately it doesn't work that way at all.

If the interest rate was 0%, it would work like that. The higher the rate, the lower the proportion of the mortgage you pay off in the early years.

jgfirehorse

Thanks,I have returned the compensation offer and asked FSCS to check they noted the endowment covered the mortgage for only 7yrs and 1 month rather than just over 10yrs when I finally cashed the plan in,I hope a double check improves their offer.
Thanks again for support

John

McKneff

Compensation is really the wrong word to use.

The idea is to put you in the position you would have been had you taken a repayment mortgage.

so you get what is calculated, not compensation.