Endowment Mortgage Shortfall

If endowment mortgage policies were popular in the 1980s and 1990s as the easiest way to repay the mortgage loan, with the beginning of the 2000s, they were again in the news; but, this time for the wrong reason. The policies, that once held the promise of fulfilling the mortgage repayment needs of the borrowers, were now falling short of the assured amount. Accusations of endowment mis-selling and the reality of falling policy values together contributed to widespread endowment mortgage shortfall.

When the endowment mortgage policies were introduced to the U.K. market, the biggest draw for them was tax rebate on the premiums. Also, it gave the borrowers an affordable way to pay off their loan. But, these advantages were soon to be overshadowed by the impending loss. Since these policies were linked to the stock market, global recession and poor performance of the stock market in the recent years adversely affected the value of the policies; the existing policies failed to meet the projected amount and the borrowers were left with practically no profit and less money.

Endowment mortgage shortfall was mainly an aftermath of improper selling of the policies by agents whose only aim was the hefty commissions; they either misled customers or hid the true facts about the endowment mortgage policies. The risks involved in endowment mortgage were not revealed to the borrowers. When the bubble finally burst, many borrowers began to get Re-projection letters that in effect were warnings that their policy returns were insufficient to pay off the mortgage and asking the policy holders to look for other options to repay the loan. The Re-projection letters also gave the amount of projected shortfall, the options available for the customer and what actions they should take.

When the borrowers realized that the policies were no longer valuable enough to support them financially, they wanted to get rid of them. So, many opted to surrender their policies to the life insurance companies for a surrender value they decided. However, when this also proved to be a major loss of money, selling your endowment policy to a third party who offered an added value over the surrender value was sought by many. The companies that were buying the endowment polices and the public that sold the policies had to approach intermediaries for the deal. These agencies, called Traded Endowment Specialists, offered the best advice to both parties regarding the transaction. Even though this method also was not adequate to meet the loan repayment requirements of millions of customers, this was deemed to be more profitable than surrendering for lesser values.