I have crossed swords with the national press more times than I can remember in defence of the endowment mortgage.
This has included skirmishes with financial journalists working for the so-called quality press, whose argument is based on little more than the fact that somebody has earned commission and, therefore, it must be a bad thing. You would not believe the fees that some of these "informed" scribblers receive.
So it came as little surprise when I spotted these words in the Telegraph last week: "…a housebuyer needs an endowment policy like a fish needs a bicycle…"
Here we go again, I thought. But, for once, references to commission were absent. Just for once, City Comment had a valid point.
It went on to talk about the likely downturn in payouts, as forecast by the Institute of Actuaries, which is not exactly famous for being a barrel of laughs. Current high performance is down to low inflation and the boom in share prices but it won't last, etc, etc. Furthermore, there is a danger that some policies will not do what they were taken out for, – pay off a mortgage. However, I thought we all knew that.
I have seldom been able to get the press to accept what is the root cause of this possible failure.
The undiluted blame will rest on the heads of those who sold, in great quantities, low-cost endowments with premiums diluted watery thin with term insurance elements, so as to make them competitive with repayment mortgages on monthly costs. They then needed dazzling investment performance to make it all come true.
By far the biggest culprits were the building societies and banks. I have had many a lunch with a bank manager friend who is in constant hot water for not selling enough endowment mortgages.
Let us get one thing straight. A properly arranged endowment mortgage is a luxury product. Sensibly funded, the monthly cost will exceed that of a similar repayment mortgage by a fair chunk.
Before the low-cost version was invented, you had to arrange an interview between a client and their bank or building society manager to establish that the former should be allowed to have an endowment mortgage.
But once lenders got the scent of a few bob in it for themselves, they smartly changed their politics.
The use of a full-cost endowment means that the mortgage is guaranteed to be paid off. To take a few simple figures by way of example, at 8.7 per cent interest and ignoring tax relief, a 25-year, £50,000 repayment mortgage costs £413.93 plus, say, £11.50 for life cover for a male non-smoker aged 40 next birthday. Total, £425.43.
On a proper endowment mortgage basis, the cost will be £362.50 interest plus £188.50 premium – £551.00 (Standard Life premiums. Source: Money Facts.)
Leaving aside all the other advantages of an endowment mortgage, Standard Life is paying £398,000.82 on a similar policy maturing this year, that is, £348,000.82 pocket money to the borrower.
Even if we do see a bit of a downturn, I reckon that on this basis the IFA will have earned every penny of his commission for good advice. So belt up, you envious scribes.