`Personal Finance: The important thing for endowment holders is, as the FSA stressed this week: Don't panic'

LIKE SHOULDER-PADDED suits and Rick Astley, endowment mortgages were hugely popular in the 1980s but are now almost universally reviled. As interest rates and inflation have fallen to 30 year lows, there are fears that many endowment policies will not grow fast enough to pay off the home loans they are linked to.

This week the prospects for endowments appeared to get even bleaker, as Tony Holland, the Ombudsman for the Personal Investment Authority (PIA), declared that anyone who was sold such a mortgage without being warned of the risks was entitled to compensation.

At first Mr Holland's words, uttered on BBC Radio, seemed to suggest that endowments will follow personal pensions as the subject of a multi- billion pound drive for compensation. The PIA was quick to point out that he was merely restating its position that endowments are inherently more risky than repayment mortgages, and that if this is not explained to borrowers, there may have been a mis-sale, which in turn could give rise to compensation.

This payback would consist of the premiums paid plus interest.

But this is a long, long way from the Government-supported, industry- wide action over pensions miss-selling. Much of the problem is that Mr Holland's words came hard on the heels of warnings from the Institute of Actuaries, which declared that many people will need to increase contributions to their endowment policies.

It was left to the Financial Services Authority (FSA) to damp down the rising panic, by urging people to look very carefully before ditching their endowments. Cashing in your policy is one of the most damaging things you can do.

After all, your contributions will have already paid off the huge commissions that the salesmen take from the policy in the first few years of its life. But the policy will not have benefited from the compound growth of the shares it invests in. So if you are worried about it, write to your lender, or get your IFA to do so, to get an update on how the policy is growing.

An alternative, very popular this year, is to remortgage. You can switch to a repayment mortgage and keep the endowment policy going separately, in effect as a long-term savings policy. You will still get the "uplift" of the last few year's of the policy's growth, but you won't have the worry of whether that growth will definitely pay off the mortgage.

Also, if you are advised that your endowment may fall short, switching to a repayment may be a much better route than "topping up" your existing endowment.

The important thing for existing endowment holder is, as the FSA very sensibly stressed this week, "Don't panic."

If you are still worried, why not contact the FSA direct. The FSA operates a Consumer Helpline on 0845 606 1234. It produces a range of user-friendly fact sheets available from their leafletline on 0800 917 3311. Or try the FSA website on http://www.fsa.gov.uk. The leaflets include the FSA guide to making a complaint, the guide to ISAs and the guide to financial advice.

News
Bill Gates, founder of Microsoft and co-chair of the Bill and Melinda Gates Foundation
businessUber, Snapchat and Facebook founders among those on the 2015 Forbes Billionaire List
News
news... and what your reaction to the creatures above says about you
News
Jihadi John
newsMonikers like 'Jihadi John' make the grim sound glamorous
News
music
Have you tried new the Independent Digital Edition apps?
Life and Style
ebookNow available in paperback
ebooks
ebookPart of The Independent’s new eBook series The Great Composers
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs General

    Ashdown Group: Finance Manager - Covent Garden, central London - £45k - £55k

    £45000 - £55000 per annum + 30 days holiday: Ashdown Group: Finance Manager - ...

    Ashdown Group: Systems Administrator - Lancashire - £30,000

    £28000 - £30000 per annum: Ashdown Group: 3rd Line Support Engineer / Network ...

    Recruitment Genius: Graduate Web Developer

    £26000 - £33000 per annum: Recruitment Genius: A Web Developer is required to ...

    Ashdown Group: PeopleSoft Developer - London - £45k

    £45000 per annum: Ashdown Group: PeopleSoft Application Support & Development ...

    Day In a Page

    The difference between America and Israel? There isn’t one

    The difference between America and Israel? There isn’t one

    Netanyahu knows he can get away with anything in America, says Robert Fisk
    Families clubbing together to build their own affordable accommodation

    Do It Yourself approach to securing a new house

    Community land trusts marking a new trend for taking the initiative away from developers
    Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

    David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

    The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
    With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

    Money, corruption and drugs

    The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
    America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

    150 years after it was outlawed...

    ... America's first slavery museum is established in Louisiana
    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
    Tony Oursler on exploring our uneasy relationship with technology with his new show

    You won't believe your eyes

    Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
    Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

    Moores must go. He should never have been brought back to fail again

    The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
    War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

    The battle for Mosul will unleash 'a million refugees'

    Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
    Yvette Cooper: We can't lose the election. There's too much on the line

    Yvette Cooper: We can't lose the election. There's too much on the line

    The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
    A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

    It's not easy being Green

    After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
    Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

    Gorillas nearly missed

    BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
    Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

    The Downton Abbey effect

    Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
    China's wild panda numbers have increased by 17% since 2003, new census reveals

    China's wild panda numbers on the up

    New census reveals 17% since 2003