Shortfall with Endowment Mortgage

BowWow

Apologies if this was/is discussed elsewhere, but I've done a search and cant find any reference.
My problem is, I have an Endowment Mortgage with Hibernian(previously Norwich Union). It now looks likely there will be a shortfall between the outcome of the policy and the actual mortgage. I'm exchanging letters with Hibernian, but getting nowhere. Any one else have this problem?

WICKL0W

I have 2 endowment policies with Standard & Norwich. Both companies have written out to me every other year with updates for the past 8/9 years and suggested that there may be a shortfall. I acted on their advice and took out a separate savings policy about 8 years ago to act as a rainyday fund if the need ever arose. Interest rates, inflation and investment returns have all come down in the last 15 years so there was bound to be a give on the policy. What have you done with all your savings in interest ? I have number crunched and had an accountant do the same and I am way better off than if I had gone down the regular repayment route. You also would have got free shares from Norwich if taken out in 90s. I made a subtantial amount from that and I got money from Scottish Provident (the extra savings policy) and another windfall on the way from Standard ! Best investment I ever made. The difference nowadays is that interest only mortgages dont look for an endowment policy.

ck1

Hi, just thought I would give you some info as to why some policies appear to have a shortfall. An Endowment is basically a savings policy combined with a life assurance contract. Part of the premium you pay monthly goes towards the life cover and the remainder goes towards the savings. The premium that you pay for this savings element is based on a calculation at the outset so that it will acheive the sum required based on a growth rate. Previusly the growth rate was based on 8 & 10% so as if the fund acheived said growth rate, generally calculated on the lower, you would have your requied fund. Any growth above the calculated rate would be in excess of requirement. Few years back they changed the assumption rates to 6% & 8% so upon recalculation there would automatically be a shortfall as the lower the growth rate assumed the higher the premium required. These calcalutions were made even if your actual fund was acheiving in excess of the requried growth rate. Previous to the 8 & 10%, these were calculated at a rate of 10 & 12% but this was in the 80's.

Hope this is all making sense.

Of course if you savings were going into a cash fund for example, this would probable only acheive a growth of around 3% so there would be a hugh shortfall. What you need to be looking at is what fund your savings are being directed to, check if it within your risk profile, and switch if you are not happy with it. Most endowment should have the facility to switch. Take care if you are investing into with profits as you may be forfeiting some of your terminal bonus if you switch but this is not always a bad thing, it depends on the company.

BowWow

Wicklow, Thanks for replying, I accept I received shares in Norwich. Not too sure if they were free! I'd perfer to see bonus's applied rather than shareholders rewarded. Potential future free shares was not what I signed up for.
CK1,Thanks to you too. Your comments look very like the replies I've received from Hibernian! I do understand the reasons behind the shortfall.

Perhaps I should explain a bit more. The actual shortfall will be very small relative to the value of my property - I'm lucky enough to be able to write a cheque to cover it. The absence of a surplus doesn't bother me too much - That was never contracted to by Norwich at the time and I took that risk when I took the policy.
However I did ask the salesperson (a Norwich employee - not a broker) to give me a policy that would clear the mortgage. The mortgage was for IR£45k. I was handed a "with profits" policy for IR£21.15k. I asked why a policy for this amount and was told that was all I needed to clear the mortgage and that there would "probably" be a surplus as well. I have witnesses to this.

The principle here bothers me. I regard the above as mis-selling. I didnt pick the figure of 21.15 - it was handed to me.

RainyDay

BowWow wrote:

However I did ask the salesperson (a Norwich employee - not a broker) to give me a policy that would clear the mortgage. The mortgage was for IR£45k. I was handed a "with profits" policy for IR£21.15k. I asked why a policy for this amount and was told that was all I needed to clear the mortgage and that there would "probably" be a surplus as well. I have witnesses to this.

The principle here bothers me. I regard the above as mis-selling. I didnt pick the figure of 21.15 - it was handed to me.

Have you got the original policy document? Does it give the usual 'shares can fall as well as rise' 'no guarantee of final value' disclaimers?

ButtermilkJack

Hi, sorry if this is slightly off topic, or sounds a little naive, but anyone working in finance/investments that can't make a substantial profit on sums invested many years ago shouldn't be in a position to give advice. The staff in these companies should NEVER HAVE SUGGESTED surplus amounts on invested funds if there was never any intention to do this. Why would a company give you extra money than what you need when they could just as easily keep it for themselves? Surpluses were never going to happen.

I feel very sorry for people in a position where they will be forced to pay out large sums to cover someone elses mis-management of their money.

Has there ever been an enquiry into any of these companies to see why all the funds are achieving such poor results. It all sounds too "convenient" for me. Take peoples money, promise them riches, then 15/20 years later ask for more? This can't be good management of funds! Can it?

Maybe I'm way off the mark, I don't know, but with the economy going WAY up in value over the last decade or so, where is all the growth?

RainyDay

ButtermilkJack wrote:

Has there ever been an enquiry into any of these companies to see why all the funds are achieving such poor results. It all sounds too "convenient" for me. Take peoples money, promise them riches, then 15/20 years later ask for more? This can't be good management of funds! Can it?

Maybe I'm way off the mark, I don't know, but with the economy going WAY up in value over the last decade or so, where is all the growth?

The answer is simple - fees & charges. In the bad old days, 5% bid/offer spreads (aka entrance fees), with most of your first year's contributions going to the salesperson instead of going into your fund.

ButtermilkJack

RainyDay wrote:

The answer is simple - fees & charges. In the bad old days, 5% bid/offer spreads (aka entrance fees), with most of your first year's contributions going to the salesperson instead of going into your fund.

Oh my God are you serious :eek:

No wonder these sales people were pushing products that wouldn't live up to expectations. I presume they didn't give a second thought to the fact that they may be playing with peoples futures.

Unregulation... :mad:

brian16

The fact is a lot of these endowments where sold misleadingly there is help out there. I was sold one in 1986 told It would pay off my loan and there would even be something left over. I was also told to take it or leave it. I was offered nothing else. You should look up the case of the Kilmartins,
I am also taking a case for not only been mis-selling the policy but also none disclosure. As you may know none disclosure by one party in any contract makes that contract invalid. I will not only be looking for the short fall I shall also be looking for a total refund under contract law. No contract no mortgage
Typical examples of endowment policy mis-selling
There are a number of ways in which endowment mortgage policies were mis-sold.
These include:
The endowment did not match the policyholder's attitude to risk and this was not taken into account at the time of sale
when advice was provided regarding the most suitable mortgage.
An endowment policy was recommended without any choice or explanation of an equivalent repayment product
A promise of guarantees, that did not exist, was made, or indicated by the sales person
Conditions were attached to a mortgage stating that it would only be granted if an endowment policy were arranged
The risk of a possible shortfall in reaching the target mortgage, or how this could be dealt with, was not explained
If you can tick any of these you have a case

brian16

ButtermilkJack wrote: »

Oh my God are you serious :eek:

No wonder these sales people were pushing products that wouldn't live up to expectations. I presume they didn't give a second thought to the fact that they may be playing with peoples futures.

Unregulation... :mad:

The fact is a lot of these endowments where sold misleadingly there is help out there. I was sold one in 1986 told It would pay off my loan and there would even be something left over. I was also told to take it or leave it. I was offered nothing else. You should look up the case of the Kilmartins,
I am also taking a case for not only mis-selling the policy but also none disclosure. As you may know none disclosure by one party in any contract makes that contract invalid. I will not only be looking for the short fall I shall also be looking for a total refund under contract law. No contract no mortgage
Typical examples of endowment policy mis-selling
There are a number of ways in which endowment mortgage policies were mis-sold. These include:
The endowment did not match the policyholder's attitude to risk and this was not taken into account at the time of sale when advice was provided regarding the most suitable mortgage.
An endowment policy was recommended without any choice or explanation of an equivalent repayment product
A promise of guarantees, that did not exist, was made, or indicated by the sales person
Conditions were attached to a mortgage stating that it would only be granted if an endowment policy were arranged
The risk of a possible shortfall in reaching the target mortgage, or how this could be dealt with, was not explained
If you can tick any of these you have a case