Press Release

Endowment mortgages – clear majority take action to address shortfalls

15 July 2005

Research has confirmed the insurance industry’s view that most customers with an endowment mortgage have taken sensible action to address any potential shortfall. This new research from the FSA comes after millions of customers received re-projection letters from their companies alerting them to the performance of their investments and urging them to take appropriate action.

Chris Kenny, the ABI’s Director of Life and Pensions, said:

“The efforts of the industry and others appear to be paying off. Many more people have taken action to address the possibility of a shortfall. We are pleased that the recent improvements in communication with customers have been successful.

“We are not complacent about standards of complaints handling, although a clear majority of insurers have made good progress and provide a good service. We will continue to work with members, through our Complaints Benchmarking Exercise, to make further improvements so that all customer complaints are handled quickly, fairly and sensitively.”

The ABI (Association of British Insurers) has today published a new briefing paper on endowment mortgages, with up-to-date information on the numbers of policies in force.

Key facts include:

• The number of endowment policies in force fell to 7.5 million by March 2005, down from nearly 11 million in 2001.
• 2.2 million households have an endowment policy that is still related to their mortgage and are facing a shortfall at the average rate. 69% of these have taken action to address their situation and another 14% are planning to do so.
• The total shortfall for those customers with an endowment still being used to pay for their mortgage is £16bn. In 2004, the Treasury Select Committee estimated the total endowment mortgage shortfall at £40bn.

As many people move house and property prices continue to rise, many savers have been able to re-structure their finances, switch to a repayment mortgage or build up other savings in order to avert the problem of a shortfall. In addition, many customers continue to receive the benefit of lower interest rates in lower monthly payments on their interest only mortgage.

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