Endowment Mortgages UK

Endowment mortgages were a very popular method in the U.K. in the 1980s and 1990s to buy a house. This type of deals combined a mortgage loan with one or more endowment policies in which the borrower invested; this was an interest-only loan and the policy was an assurance that the original amount will be paid off from the returns of the policy. The borrower had to pay only the interest on the loan amount to the lender; the capital was supposed to be paid off at the end of the loan term by the lump sum amount that the borrower receives when the endowment policy matures. This gave the borrower much relief from the liabilities of re-paying a huge loan amount. Endowment mortgages were so popular in the U.K. that the early 1980s witnessed a peak in endowment policy and endowment mortgage sales. At the initial stage, those who bought endowment policies also got tax relief on the monthly premiums; this also boosted the sales of endowment policies for mortgage purpose.

Endowment mortgages made its appearance in the U.K. as early as the 1970s. When they were originally introduced to the U.K. customers, they were linked to the ‘with profits’ policies, which later switched to ‘unit linked’ policies in which the value of the insurance amount depended greatly on the stock market price fluctuations. At the initial stage, these endowment mortgages offered very less monthly repayments when compared to the regular repayment mortgages along with the attraction of a cash benefit from the lump sum insurance returns. More and more people began to buy the endowment mortgage policies offered originally by life insurance companies that wanted to monopolize the highly profitable mortgage market in the country. The endowment mortgages gave the borrowers the freedom to own a house without having to bother about paying a huge amount every month as loan premium. Instead, they paid only the interest and left everything else to the endowment policy.

However, this boom was not to last for too long. The mis-selling of endowment mortgages became widespread which was mostly the result of selling the wrong policies for a hefty commission; the assurance of paying off the capital seemed no more valid as the amount that the insurer received was not sufficient to repay the loan. The borrowers had to find other ways to meet their financial crisis; they began to surrender or sell their policies. Surrendering the policies to the life insurance company for a value they decided was not suitable for many; they sold their policies to third parties that offered more than the surrender value. Buying endowment policies from the borrowers of mortgage loans became an industry in the U.K. leading to the establishment of Traded Endowment Specialists that acted as intermediaries to buy and resell the policies.