endowment shortfall

donemedosh

Hi. I have a relative who took out a £25000 endowment 20 odd years ago. He has paid about £200 a month for the last 20 years as his repayments. But the endowment ends soon & he tells me the bank says he has a shortfall of £45000 how can this be. Any ideas would be gratefully received. This is my first visit & post to the forum.

[Deleted User]

Endowments have underperformed in recent years, so shortfalls are not uncommon. He would have been advised of this in letters from the provider.

He needs to think about what options he has to make up the shortfall.

Wilkins

I assume that's £250,000 not £25,000. It's as zx81 says.

cattie

Wilkins wrote: »

I assume that's £250,000 not £25,000. It's as zx81 says.

A £250k mortgage 20+ years ago would have been absolutely huge & back in those days most people dreamed of one day owning a house worth a cool quarter of a million pounds, even in pricey London! Therefore the poster is probably perfectly correct in stating a mortgage figure of £25k.

BobQ

cattie wrote: »

A £250k mortgage 20+ years ago would have been absolutely huge & back in those days most people dreamed of one day owning a house worth a cool quarter of a million pounds, even in pricey London! Therefore the poster is probably perfectly correct in stating a mortgage figure of £25k.

With a shortfall of £45,000? See OP

BobQ

donemedosh wrote: »

Hi. I have a relative who took out a £25000 endowment 20 odd years ago. He has paid about £200 a month for the last 20 years as his repayments. But the endowment ends soon & he tells me the bank says he has a shortfall of £45000 how can this be. Any ideas would be gratefully received. This is my first visit & post to the forum.

Your relative may have just mentioned this to you but he has either known about the problem for years or has not been reading the letters he would have got from the provider. I can understand him ignoring the first one but this problem has been developing for some time, for the reasons given.

He was probably advised to take out another means of repaying the loan or to convert it to a repayment mortgage some years ago.

Each year they would have made an assessment on the likely pay out of the endowment using a standard formula that estimates it and each year will have told him of the likely shortfall.

Poppops

We had an endowment with the Halifax years ago and got the letter about the policy probably not going to cover us. It was at that time in the early 2000's and as the house had cost £29,000 and was by then worth £85,000, we decided to sell up and with the next house went onto a repayment mortgage.

However, I definitely remember that before we did that we were able to claim against the Halifax. I even think the paperwork came with the notification letter.

We got a few grand (which being us in those days we blew!)

Is claiming no longer an option?

BobQ

Poppops wrote: »

We had an endowment with the Halifax years ago and got the letter about the policy probably not going to cover us. It was at that time in the early 2000's and as the house had cost £29,000 and was by then worth £85,000, we decided to sell up and with the next house went onto a repayment mortgage.

However, I definitely remember that before we did that we were able to claim against the Halifax. I even think the paperwork came with the notification letter.

We got a few grand (which being us in those days we blew!)

Is claiming no longer an option?

The dates for claiming have expired by now. The providers wrote to those with endowment mortgages explaining their options. The OP's relative will probably have ignored those letters too.

There was no general right to claim because of a shortfall. It depends if they had evidence that they were sold in a way that made the risks clear. The claim was that you had been mis-sold the product.

donemedosh

But if you make the repayments on an endowment this is the interest on the loan you are paying off. Therefore if after 25 years the shortfall if the endowment was worthless should be a max of £25000. So I don't see where thy get a figure of £45000

TrickyDicky101

donemedosh wrote: »

But if you make the repayments on an endowment this is the interest on the loan you are paying off. Therefore if after 25 years the shortfall if the endowment was worthless should be a max of £25000. So I don't see where thy get a figure of £45000

Your relative is not telling you the full story then if the figures are correct. Not really another explanation anyone here will be able to give.

BobQ

donemedosh wrote: »

But if you make the repayments on an endowment this is the interest on the loan you are paying off. Therefore if after 25 years the shortfall if the endowment was worthless should be a max of £25000. So I don't see where thy get a figure of £45000

With an endowment mortgage there are usually two payments. One to cover the mortgage interest to the lender and another to cover the endowment policy premium to the insurance firm.

If your figures are correct that the endowment was only £25000 its difficult to see where the £200 a month was going unless it also includes the mortgage interest as well as the endowment premium.

About 25 years ago I took out an endowment to cover a mortgage of about £42K and paid premiums of £54pcm so a policy to cover a £25K loan would have cost about £30pcm.

I suspect that there is some confusion or you do not have the full story. Could it be that the £45K includes a shortfall in the endowment plus some failure to keep up with the mortgage interest as well?

Otherwise you need more information.