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 regulator 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.
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:
This page contains links to information about mortgage endowment compensation, our typical approach and some less common circumstances that arise.
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
This is part of our online technical resource which sets out our general approach to complaints about a wide range of financial products and issues. We would like your feedback on how helpful you found it. Please also use the feedback form below to tell us about anything you think we could clarify or explain better.