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ombudsman news

issue 39

August 2004

ask ombudsman news - your questions answered

complex calculations - establishing loss in cases of mortgage endowment mis-selling

An IFA writes ... I've just received my first mortgage endowment complaint. I've checked the regulatory guidance on the FSA's website, to see how I'm meant to work out any loss my client may have suffered. Can the ombudsman service give me any tips on carrying out the calculations-

The FSA has told firms how they must calculate redress for mis-sold mortgage endowments. The rules that firms have to follow when handling these complaints are set out in Appendix 2 of the Complaints Sourcebook of the FSA's Handbook (but are often referred to by firms as "Regulatory Update 89" or "RU89").

Basically, redress is calculated by comparing the consumer's current financial position (taking the endowment policy into account) with what their position would be now if they had taken out a repayment mortgage at the outset instead. This calculation involves comparing the interest and premiums actually paid on the endowment mortgage with the interest and capital repayments that would have been paid on an equivalent repayment mortgage.

It also involves comparing the endowment policy's current surrender value with the amount of capital that would have been paid off with a repayment mortgage.

It is unlikely that a firm would be able to carry out these calculations manually - or just by setting up a simple spreadsheet. As well as applying the correct formulae, firms need access to the specific rates of interest that applied to particular mortgages over different periods of time.

A number of specialist companies have designed software to carry out these detailed and complex calculations. These companies supply their software under licence - and most will also run individual calculations as a "one-off" service. You'll find more details about these commercial services if you type key words such as "RU89 calculations" into an internet search engine.

finding out about the ombudsman service - information for insurance and mortgage intermediaries

My firm will soon come under the ombudsman service for the first time, when statutory regulation begins for the general insurance and mortgage sectors. How can we find out more about how the ombudsman service works-

Look at the details of the special events we are running around the country specifically for insurance and mortgage intermediaries. If you'd like to attend an event, just turn up on the day at the venue that's most convenient for you. You can also check out the resources and information for firms on this website.

Walter Merricks, chief ombudsman

ombudsman news issue 39 [PDF format]

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.