As a mortgage endowment policyholder myself, I am puzzled by the media's obsession with this story as I consider it to be hyped up and flawed.
Clearly, mortgage endowments were enthusiastically oversold to millions of borrowers who believed such policies were a relatively safe way of repaying a mortgage and potentially producing a surplus at the end of the term. Whether or not consumers were misled is another issue. What cannot be denied is that there was a definite bias in favour of endowments and in certain cases misselling did take place.
Most consumers would have been given quotations for both a repayment and endowment mortgage and many would have chosen the endowment method as the monthly payments were often cheaper. This was particularly the case when interest rates were high.
Another point to bear in mind is that insurance companies did not always show their growth rate assumptions. So, companies such as Eagle Star could come out top of the list when they were hiding behind a growth rate assumption of 9.5 per cent, whereas a company such as Scottish Amicable may have been using a more conservative growth rate assumption of 7 per cent.
What people seem to have forgotten is that many consumers whose endowments have already matured have enjoyed healthy surpluses.
When a mortgage endowment quotation is produced, it shows a range of possible returns, usually including a deficit, repayment of the mortgage in full or a surplus. On that basis alone, it is unfathomable to me how anyone can say they did not realise there could be a shortfall. Furthermore, there is nothing in the illustration to suggest the mortgage repayment is guaranteed.
During the economic cycle, you get periods of high and low inflation, interest rates, stockmarkets and property prices. During the 1980s and 1990s stockmarket boom, endowments were producing excellent returns. During the last three years, markets have fallen by around 40 per cent. However, interest rates have fallen by around 75 per cent since their peak in the early 1990s. What this means is that overall mortgage repayments for endowment policyholders have fallen dramatically.
What policyholders should do is convert their mortgage to a full or partial repayment mortgage and either keep their endowment as a savings plan/life policy or sell/surrender their endowment and use the proceeds to pay off part of their mortgage. This will result in repayments that are lower than at the interest rate peak of 15 per cent-plus in the early 1990s.
I have a £66,000 endowment mortgage with my wife. We have decided to keep our Scottish Widows low-cost with-profits endowment and convert to a Cheltenham & Gloucester repayment mortgage with a capped rate of 4.99 per cent until April 30, 2007. Comparing our repayments between 1992 and 2002 makes interesting reading (see table below).
As we have chosen the repayment route, we cannot have an endowment shortfall. Even if our endowment does not reach the target of £66,000, we will pocket all the money in October 2012, whether it is £66,000, £55,000 or £40,000.
The interesting thing is that our overall mortgage repayments have fallen by 61 per cent or £573 a month on the original interest-only basis.
Anybody who has not converted in part or full to a repayment mortgage has no one to blame but themselves.
It is time for individuals to take responsibility for their lives. Governments and regulators do not have responsibility to protect people from their own ignorance. It is their responsibility to ensure consumers are not being defrauded and negligently mistreated instead. If the emphasis of regulation were shifted more in that direction, industry debacles could be more easily avoided.
Tony Byrne is business development director at Byrne Williams