Forum Brief: Endowment Mortgages

Thousands more homebuyers who are relying on endowment policies to repay their mortgages are to be warned by the Financial Services Authority that the policies are unlikely to produce the cash they need, according to reports.

Forum Response: Association of British Insurers

Mary Francis, director general of the Association of British Insurers, said: "The study by PricewaterhouseCoopers is an important reminder that in the long run equities offer significantly higher returns than fixed-interest investments such as bonds. That is good news for savers and a significant finding, after the recent market falls.

"It is sensible of the FSA to point out that funds which have reduced their holdings of equities may grow less rapidly. But the FSA also point out that in some firms a switch from equities has been only temporary.

"Insurance and savings companies have until now been required by the FSA to produce illustrations of future growth on a standard basis. We will of course follow their advice to give more flexible projections in future, taking account of their confirmation that equities will continue to out-perform most other types of investment."

Forum Response: Consumers Association

A spokesman for the Consumers Association told ePolitix.com: "Endowment mortgages have been one of the biggest corporate failures in financial services.

"It has implications for both home owners and pension holders.

"Our most recent survey indicated that consumer confidence in financial services had fallen."

Forum Response: Council of Mortgage Lenders

A spokeswoman for CML told ePolitix.com: "Borrowers who are worried about the ability of endowment returns to pay off their mortgage should act now. The Financial Services Authority has published a helpful factsheet called Your Endowment Mortgage - Time to Decide".

"It contains a decision tree for borrowers with endowment mortgages and explains a range of options for making up any shortfall on a mortgage loan.

"It is important that borrowers do not just cash in an endowment policy or stop paying it, without taking advice. Some of the options open to borrowers may include taking out a repayment mortgage to cover the shortfall, starting an additional savings plan or varying the endowment policy."