Flat stockmarkets do not make news. After a few days, the public does not want to hear that markets did not move about very much. But if they stay like that for long enough, flat markets turn into an agonising form of slow torture with painful results that only gradually become apparent.
The most obvious impact is in areas where consistently high investment growth is a necessity.
As IFAs know all too well, more than six million homeowners are not paying off their mortgages at all but relying on their endowment policies to do it for them.
But those policies are simply not growing fast enough. The ABI has released figures showing that the number of homeowners with almost no chance of their policies paying off their mortgages is now 34 per cent – double what it was two years ago.
And the number at serious risk (the amber coding) is 26 per cent – meaning that a total of 60 per cent of endowment holders are at risk.
Journalists always get accused of writing “scare stories” about endowments. But the longer the flat stockmarkets go on, the less likely it looks that bonuses on those endowments will recover to anything like the level needed to lift people out of danger.
Perhaps endowment holders need to be scared. If they are not given a jolt to wake them up, the whole problem will never be dealt with.
Even though insurers have given them written warnings about what might happen and in spite of numerous “scare stories”, figures from the FSA show that only a fraction of them have taken any action.
The FSA has produced further figures showing how few of them were warned of any risk of a shortfall or even realised that their investment was linked to the performance of the stockmarket.
Yet it still is not clear how many endowment holders realise that just at the moment when their mortgage is supposed to mature, just when they thought they would own their house outright, they could end up spending their time talking to debt collection agencies.
Unless they can rely on their mortgage lender to be lenient – a sizeable assumption – they could be forced to sell their home.
Endowment mortgages in 2010, when the bulk sold in the late 1980s come to maturity, could well be the cause of a repossession crisis that will dwarf the very worst of the early 1990s' slump.
Granted, some companies – like Standard Life and Norwich Union – are trying to provide some reassurance, with their conditional promises that if investments grow by 6 per cent then endowment mortgages will work out fine. But that only applies to some of the endowment providers. With consistently flat stockmarkets, there is still a real chance that even that hurdle will not be jumped.
The complacency with which that very real danger is viewed is becoming dangerous.
The ABI, keen not to rock the boat too much, accompanies these alarming figures with a lecture for endowment holders, almost telling them how lucky they are to benefit from lower interest rates – and how they will feel little pain if they pour that into fixing their endowments.
Excuse me, but that was not the contract that they were sold. Endowment mortgage holders would be expected to pay higher monthly payments if interest rates went up.
Would insurers then have written six million letters offering to compensate by cutting their endowment contributions? Unlikely. If this argument were true, the people who advised endowment holders should have warned them that it was a one-sided bet. If interest rates rise, you lose; if they drop, you do not gain.
The resistance to a compulsory, personal pension-style review of endowment mortgages is understandable on one level. It was always unjust that IFAs and life insurers were forced to pay for falling investment returns, and changing economic circumstances that no one else predicted.
When endowment mortgages were sold, most were not sold cynically.
The company reps, tied agents and IFAs who sold them were not just after commission. In many cases, they also thought the client was getting a sound deal.
All they were guilty of was making the same assumption everyone else did – namely that the stockmarket, etc would carry on pretty much as before.
But now flat stockmarkets have seriously subverted that assumption, it should not be endowment holders alone who pay.
They need more than a”6 per cent promise”. At the very least, those who were given no proper idea of what they were getting into should be given the peace of mind to know that they will not lose their home just because they believed what the financial adviser told them.
There is no need for a pension-style review. The banks and building societies should talk to insurers to work out a way of issuing guarantees to borowers, promising they will not have to sell their homes because of having an endowment mortgage that has failed to perform.
Banks, insurers, and homeowners all made a bad assumption – that the stock market would continue as it had. It should not be homeowners alone who have to pay for that mistake.
Andrew Verity is personal finance correspondent at the BBC