Yes, They're STILL Selling Endowments
Hopegood, James, Daily Mail (London)
Byline: JAMES HOPEGOOD
MORE than a quarter of a million endowment mortgages were sold last year - despite warnings of their inflexibility and fears that they will leave homebuyers high and dry.
This represents an incredible one in five mortgages set up last year, though the Association of British Insurers says it is a huge drop from the 637,000 sold only two years ago.
So who is doggedly continuing to sell these discredited plans?
Many of the sales are being made by independent financial advisers who are supposed to trawl the market for the best deal for their clients. But they have failed to understand the changing economic conditions which make any investment-backed mortgages a bad idea.
Their lack of understanding can be summed up by one independent financial adviser (IFA) who emailed Money Mail saying he simply asked clients whether they intended to move house in the next 25 years.
If the answer was 'yes', he advised them to take an endowment. He mistakenly suggests that with a repayment mortgage they would have to take out a new 25-year loan every time they moved.
This is a simplistic, incoherent and incorrect argument used by endowment salesmen. In fact, it is possible to take out a repayment mortgage for periods much shorter than 25 years without seriously increasing monthly repayments. The result can be thousands of pounds in saved interest.
Highly qualified IFAs take a different view. Robert Reid, at independent financial adviser Syndaxi Financial Planning, says: 'I cannot think of a logical financial planning reason for selling a new endowment.' Patrick Bunton at IFA London & Country Mortgages says: 'My gut feeling is that it is the more naive first-time-buyer end of the market where they are likely to be sold, possibly via estate agency-type outlets.' Tom McPhail at IFA Torquil Clark says that existing mortgage endowment customers may also be sold topup policies following reviews.
Most of the IFAs who back endowments bask in past performance figures looking back over 25 years.
They ignore the facts that over this period, tax relief on mortgage interest and life insurance premiums have been removed; inflation has fallen and along with it stock market expectations; and endowments generally have high charges, are inflexible and are not taxefficient.
What was a good investment then is not one now.
The sales made by IFAs can fail to show up in official figures collated by the Council of Mortgage Lenders because they are often listed merely as interest-only mortgages.
The big firms still selling endowments include Bradford & Bingley and its independent arm MarketPlace, Norwich Union, Standard Life, Scottish Mutual, Scottish Life, Clerical Medical, Friends Provident, Britannic and MGM Assurance. Most of these insurance firms rely on IFAs for their sales.
Helene Barnes at Clerical Medical says: 'It is all done through IFAs. We don't sell direct.' These firms insist that mortgage endowments still have a role, but admit that they represent a dwindling proportion of their business.
But better-value stock market savings have been on offer from unit trusts for decades. …