Endowment Policies Shortfall -
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Endowment Policies Shortfall

A record number of endowment policies have not achieved what they were originally planned to, leaving approximately 360,000 families with a shortfall which could force many to sell their home.

In some cases the shortfall can be as much as £100,000 below what they originally expected.

The loyal savers who have saved for the last 25 years will get a payout far lower than what they originally expected.  Worryingly for many families, the payout may be far lower than what they owe on the mortgage.

Many will be forced to sell their homes or if they have any savings, dip into them, as Banks and Building society's become increasingly reluctant to lend, especially to people reaching retirement age.

Homeowners over the last 25 years will have seen their property increase in value by up to 250%, however with the shortfall in their endowment policy they may have to sell their property.

Over the next five years up to two million people may find themselves in similar situations.

The Financial Services Authority director has fears that up to 1.5 million homeowners in their 50s with interest-only mortgages are sitting on a time-bomb and won't be able to pay off their loans.

Patrick Connolly, from independent advisers AWD Chase de Vere, says: 'Payouts have fallen over the past few years and this is likely to continue. The risk of savers having to sell their home to pay off the home loan is increasing.'

In the late Eighties endowment mortgages soared which will see a record number of polices mature this year.

The annual premiums for insurers were more than £2.3 billion, as more than six million policies were taken out.

The intention for homeowners when they purchased them was to pay off their mortgages and provide a lump sum if the return on the investment was good.

They would then only pay the interest to the lender but not repay any of the capital.

The monthly payments to the endowment went into stock markets linked with profit policies. Though for many the promised investments have not materialised, leaving many homeowners with huge shortfalls which they still owe to the mortgage lender.

In the past five years the payments have fallen by as much as 44%.

The Financial Services Authority demands firms write to policyholders each year to tell them how their policies are progressing. You have three years after receiving your first warning letter in which to complain you were mis-sold the policy - for example, if you did not understand the underlying risk of stock market investment.

But nearly half of those registering complaints with the ombudsman have missed this deadline.

Martyn James, from Financial Ombudsman Services, says: 'Some consumers told us they thought they would be covered by final bonuses, only to find that these were low or not made at all. Others thought things might improve if they held out for a bit.'

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