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online technical resource

mortgage endowments

The law requires us to decide each case on the basis of our existing powers and what is fair in the circumstances of that particular case.

We take into account the law, regulators’ rules and guidance, relevant codes and good industry practice at the relevant time. We do not have power to make rules for financial businesses.

Our current approach may develop in the light of circumstances we see in further cases we may receive. We may decide that fairness requires a different approach in a particular case.

overview

Mortgage endowment policies are investment savings plans that also provide life insurance cover. The money paid to the endowment is invested by the policy provider with a view to creating a lump sum sufficient to repay the consumer’s interest-only mortgage at the end of the policy term.  

Complaints arise because the amount actually payable on maturity is uncertain and dependent on the investment returns achieved. So unlike a repayment mortgage, there is a risk that the mortgage loan may not be repaid in full on maturity, even if all the contractual payments are made to the loan and endowment. 

During the 1980s and 1990s mortgage endowment policies were very popular. According to FSA figures, about six million UK households held around 11 million endowments by 2000. 

In general, the policies have not performed as well as anticipated and many policies are now expected to produce less than the mortgage amount to be repaid. This is known as a "shortfall".

Since March 2000, we have investigated 250,000 complaints about mortgage endowments policies and in particular about the advice given at the time of sale.

typical complaints

Typically, consumers complain that the financial business failed to explain the risks associated with their policy and instead led them to believe that the policy was certain to repay their mortgage – and that there might also be a lump sum. 

Some consumers are also concerned because their policies are not due to mature until after their planned retirement date. Usually those consumers are worried about how they will meet the monthly mortgage and policy payments after retirement – and about how they will meet any shortfall from their retirement income and savings.

We also receive enquiries and complaints from consumers:

  • who have received an offer of compensation from the financial business, which the consumer thinks is insufficient or unsatisfactory in some way;
  • who have received an offer of compensation from the financial business and are unsure whether it is fair;
  • who have been informed by the financial business that their complaint is out of time and it is too late to complain; and
  • who took out a policy, but now find the policy never actually started or stopped some time ago.

This page contains links to information about mortgage endowment compensation, our typical approach and some less common circumstances that arise.

how we decide mortgage endowment cases

our technical notes and FAQs on:

ombudsman news features on:

case studies showing more complicated situations where:

    • the consumer has converted to a repayment mortgage and retained the policy knowing the risk of doing so [case study 1]
    • the consumer has converted to a repayment mortgage and retained the policy initially unaware of the risks of doing so [case study 2]
    • the consumer has repaid his or her mortgage and retained the policy knowing the risks of doing so [case study 3]
    • the consumer has repaid his or her mortgage and retained the policy initially unaware of the risks of doing so [case study 4]
    • the policy was sold to support a future mortgage (a "forward sale") [case study 5]
    • the consumer has made a lump sum payment to the mortgage [case study 6]
    • the consumer has made a lump sum payment which would have been sufficient to repay a hypothetical repayment mortgage in full [case study 7]
    • the consumer has made a lump sum payment, but has more than one policy [case study 8]
    • the consumer now has an offset mortgage [case study 9]
    • the financial business "churned" an existing policy and recommended an unsuitable policy [case study 10]

    the Financial Ombudsman Service and mortgage endowment complaints - report by David Severn

    a report [107-page PDF opens in new window] produced for the board of the Financial Ombudsman Service by David Severn – an independent regulatory consultant and former head of retail policy at the FSA – on how the ombudsman service handled its mortgage endowment workload between 2002 and 2007