Secured Loans

Unsecured Loans

Mortgages

Equity Release Mortgages

Credit Repair

Commercial Loans

Vehicle Finance

Insurance Quotes

Sell Endowment

Subscribe to our FREE newsletter dealing with personal finance,money saving and general tips. Just enter your email address in the box and press 'subscribe'.

Debt Elimination

Mortgage Shortfall for 3 million homes

Anyone who has an endowment mortgage should have received a very important letter from their insurance company by Autumn 2000. Insurers have been ordered to begin the huge task of contacting the five million households with endowments as the full scale of the scandal over these investments has become known.

Falling investment returns mean that about three million households - representing 60 per cent of endowment policies - face mortgage shortfalls unless they start to save more. Experts say that homeowners aiming to pay off an average £50,000 mortgage may have to increase their home loans in full. The news will be a bitter blow for homebuyers who were told that an endowment would be cheaper than a traditional repayment mortgage.

Despite sharing these misgivings, the Financial Services Authority - the chief watchdog, which instigated the new year comminique from insurers - has refused to conduct an industry-wide review of the way endowments have been sold, in contrast to its treatment of personal pensions.

The FSA concedes that the lowering of growth projection rates to around 6 per cent means all endowments taken out in the late Eighties and early Nineties are no longer on target.

Despite widespread agreement that the ending of Miras (mortgage interest tax relief) from April 2000 removes the last remaining pillar supporting mortgage endowments, the controversial plans still account for a quarter of all new home loans.

The FSA has written to the chief executives of leading endowment providers demanding that they justify how they can continue to sell them and to detail improvements to make them cheaper and more flexible for borrowers. In addition, insurers have been told to set up telephone helplines for policyholders. In April, life offices will start to send out letters detailing in clear language the situation of individual customers.

Many advisers doubt that endowments will survive this latest controversy. Some say the Association of British Insurers - the sector's trade body - may have dealt the final blow by requiring firms to establish that endowments are "demonstrably" better than traditional repayment loans.

So what should you do if you are faced with a shortfall? Certainly all the experts advise NOT to add contributions to an existing endowment. If the deficit is likely to be small, opening up a savings account may be sufficient. For larger sums, saving into an equity ISA will give you cheaper and better tax-free returns than an endowment. These can be available from £30 per month and the low cost index tracking products would seem to offer the best value. They can also be used to invest lump sums and are an extremely flexible way to save for any purpose.

Click here now for mortgage enquiry form

Buying a home and mortgages can be confusing. Check our mortgage glossary to find out about any term you are unsure of. Mortgage Glossary

If you have an endowment policy, do you know how much more you could realise by selling on the open market, rather than surrendering it? Check out our online valuation tool to find out how much. Click here

The following articles provide useful general advice and information about different types of mortgages.

Looking to remortgage? - Switch home loans and cut your costs

First time buyer? - Get a leg up onto the housing ladder

Save money with a flexible mortgage

The rise of the flexible mortgage

Repayment loans are back in fashion

Looking for buy to let? - Read this

Got an endowment mortgage? - You must read this

Great part-time new business opportunity