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How To Cope With An Endowment Shortfall

Feb 13, 2008
The scale of the endowment mortgage shortfall is as yet unknown, but, like in all good James Bond films, the countdown has reached single figures.

Endowment products were first sold on a big scale in 1983, so typical 25 year terms will begin to mature in March this year.

The official government line is that the problem of endowment mortgages has largely been solved.

The problem being that when the mortgage term comes to end, returns on investments made throughout the loan are not sufficient to pay off the final lump sum.

Most people have been able to complain and seek compensation from the Financial Ombudsman Service, so in theory the number of people affected by such shortfalls should be very small.

A Financial Services Authority (FSA) spokesman went as far as saying that endowment problems were no longer a 'live issue' recently.

However, strict time limits were agreed between the mortgage industry and their regulators, so most people who attempt to seek compensation now would be 'time-barred.'

Nobody is sure exactly how many people this applies to, but it is likely to be significant number.

So what do you do if you happen to be one of those in this particular pickle?

Firstly do not do nothing. The sooner you contact your lender and establish the exact nature of your situation, the sooner the problem will be resolved.

Secondly do not panic. There are lots of options open and most lenders are very sympathetic to the situation.

As for the options themselves, a list of the most common solutions follows. This is by no means an exhaustive list but it should at least give some reassurance that all is not lost.

1. Check if you still have time to apply for shortfall compensation

It sounds silly, but make sure that you are actually time-barred from making a shortfall complaint. If you have the chance to make a claim then it would be foolish not to do so.

2. Consider a complaint on the grounds of unsuitability

Complaints on the grounds of unsuitability are not governed by the same time-bar rules as shortfall complaints. If you were sold a product that does not suit you then you may be able to get compensation that way. Grounds for unsuitability to endowment mortgages can include having no dependents at the time of the purchase, being on a low income, or having already surrendered an endowment.

3. Extend your mortgage term

Surprise, surprise, mortgage providers are rarely averse to lending you more money. They are very likely to offer you the chance to extend your term, particularly if you contact them a few months before the loan matures. It is safer and often cheaper to put extra cash into repaying the mortgage straight away, rather than putting it into investments or savings accounts.

4. Find out what guarantees your insurer offers

Annual statements including projections tend to come out at this time of year, and many embarrassed companies have taken action to meet deficits. Liverpool Victoria is guaranteeing to meet all mortgage shortfalls, and Norwich Union has set aside 1 billion to meet policyholders shortfalls as of January 1 2000.
About the Author
Robert Wood - mortgages
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