News and Events

The endowment bubble

  • Posted

Endowment mortgages were the choice of many in the late 1980s when they were sold as the perfect way to get on the property ladder, ensure your mortgage would be paid and provide you with a comfortable nest egg for your retirement.  

It was only a matter of time before the bubble burst and there are estimated to be hundreds of thousands of people who will shortly receive notification that their policies have not performed as predicted and they are facing a shortfall in terms of mortgage repayment.

The BBC reports that endowments hit their peak in the late 1980s - at its highest the figure was estimated to be more than a million policies sold in a single year. It is now recognised that endowment mortgages form part of the most notorious mis-selling scandal and predicted performance was vastly inflated. The anticipated shortfall has been a fact for some time and thousands of individuals will have received letters over a number of years advising them of the poor performance of the policy and what the implications of that are in terms of paying off their mortgage and being in a position to retain their home. Many borrowers made alternative plans in terms of repayments by switching their mortgage completely or making arrangements for mortgage repayments from another source. 

The area which is very much of concern now is those mortgages granted in the late 1980s which come to the end of their 25 year term and that there are a significant number of borrowers who have not made plans to deal with the inadequate performance of their policy. Some will be in a position to rely on the increased value in their home but will have to sell in order to discharge their secured borrowing - a bitter pill when undoubtedly the objective was to live mortgage free in that property on retirement.  

Others may be in a position to refinance, but it seems inevitable that there will be a significant number of borrowers who will face continuing monthly repayments either on their current home or in securing a new one in the years when it was promised not only would their mortgage be repaid but there would be a fund, courtesy of the endowment policy, that would see them debt free.

This comes at a time when the the population at large continues to be squeezed in terms of the rate of inflation, the price of domestic utilities, the price of fuel and low interest rates. The added problem of mortgage shortfalls for the older population will be a difficult issue for many to resolve and could well tip many into insolvency.

By solicitor, Kathryn Maclennan