View more on these topics

Bonus of contention

Millions of homeowners who are rel-ying on with-profits endowment

policies to repay their mortgage face an uncertain future. One of the

UK&#39s major life companies, Norwich Union, was the first to confirm

that bonuses have been cut this year. The average maturity value of a

25-year endowment maturing this year is expected to be 15 per cent

lower than last year.

This is a problem that is not going to go away. We are in an economic

environment of low interest rates and low inflation which, added to

an underperforming stockmarket, points to further misery.

Investors who have enjoyed double-digit inflation and growth during

the early years of their policies must look closely at likely

interest rate trends. At its January meeting, the Bank of England&#39s

monetary policy committee voted to leave bank base rate at a 37-year

low of just 4 per cent.

Economists are divided over the direction of the next interest rate

move. Booming house prices and consumer spending may lead to an

increase while Britain&#39s manufacturing industry continues to be

blighted by declining profitability and would benefit from a further

cut. Most pundits are predicting that rates will harden in the second

half of this year in line with economic recovery and finish the year

at around 4.75 per cent.

In the longer term, the movement of rates will largely depend on our

decision on entering the euro. A referendum is expected within the

next two years.

All indicators point towards a long, sustained, low interest rate

environment which will do nothing to help the maturity values of

endowment policies. However, it is not all doom and gloom. The very

fact that interest rates are so low means that all homeowners will

have seen a significant reduction in their mortgage payments.

The options for disgruntled endowment policyholders facing a

shortfall in their maturity values has usually been restricted either

to increasing premiums to their already underperforming repayment

vehicle or switching their loan to a repayment basis. There is,

however, an alternative which offers two bites at the cherry.

Many borrowers who are still paying a lender&#39s standard variable rate

are paying hundreds of pounds more than they need to. By remortgaging

to a better product, a borrower can use their saving to overcome

their endowment shortfall.

Take an average £100,000 mortgage supported by an endowment

policy with a projected shortfall of £20,000. If the loan is

moved from a lender&#39s standard variable rate of, say, 5.9 per cent to

one of today&#39s market-leading rates of 3.74 per cent, a saving of

£180 a month can be made. This can be used to switch

£20,000 to a repayment basis, guaranteeing that the mortgage

will be repaid and still benefiting from an overall saving of around

£40 a month.

My firm offers clients a free remortgage evaluation where we

benchmark an individual&#39s current arrangements against today&#39s best

buys to summarise any savings that can be made, taking into account

set-up costs. All evaluations are provided in the form of a report

which is set against the backdrop of interest rate commentary. We

extend our service beyond a client&#39s completion date to monitor an

individual&#39s arrangements to ensure they are benefiting from the best

available rates.

We also provide an annual report which summarises interest rate move-

ments and makes product-specific suggestions where necessary.


Principality Building Society fixed mortgage

Fixed term: until 31/03/05Fixed rate: 4.99%Minimum loan: £5,000 Maximum loan: up to 75% of valuationIncome multiples: 3.5 times principall income and 2.5 times jointRedemption fee: 2% of advance for three yearsArrangement fee: £299Conditions: daily interestIntroducer fee: standard 0.34%, negotiableTel: 0800 328 1717

Tougher rules on using future profits in reports

The FSA is cracking down on the financial reporting of life officesby making it harder for them to use future profits when valuing theirlong-term liabilities.The regulator sets out its plans as part of consultation paper 123,which aims to force providers to use accounting techniques whichensure their assets and liabilities are valued realistically and thatcapital requirements […]

Count the cost of turning back the clock

The FSA has failed to identify properly what is wrong with theindustry and what needs to be achieved by changes.What is needed is better-quality financial advice available on anongoing basis to the widest possible audience. It needs to beavailable at a cost which the public is happy to pay and chargeablein a manner which the […]

DBS axes fees campaigner who planned to set up rival network

Mellon Global Investors is offering a European ethical tracker fundtargeted at the Catholic community.The fund tracks the ECapital European ethical index, which excludes arange of industries selected by the Vatican University such ascontraceptives, nuclear power and pornography.IFA Evan Owen has been kicked out of DBS for considering starting a rival.Wales-based sole trader Owen, who has […]

Retirement - thumbnail

Pension freedoms: stop the scams

At the beginning of 2015, we highlighted that the new pension freedoms that come fully online on 6 April also represent a very attractive opportunity for the criminal fraternity to scam savers out of some, or all, of their accumulated retirement savings.


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm