Financial watchdog defends endowments
Sunday 08 August 1999
Speaking in an interview last week, Mr Davies said the overwhelming majority of endowment policies, which are linked to the performance of financial markets, pay out adequately. Any ban "was absolutely out of the question", he said.
Over the past few weeks, there have been calls from consumer groups and MPs for endowment mortgages to be scrapped. They claim endowments have been systematically mis-sold since 1988, with commission-hungry salesman misleading borrowers about "guaranteed" returns. Critics have accused the policies - which accounted for around a third of all mortgages sold this year - of being inflexible, of carrying relatively high charges and of underperforming, leaving borrowers unable to pay off loans. The FSA, which regulates financial products, is carrying out checks on past selling techniques. But those calling for a full-scale government inquiry and regulatory action are misinformed, Mr Davies said.
"I find it very frustrating when people are quite happy to pontificate but without being at first base in terms of what the reality is," he said. "They do not seem to look at the numbers. There are just basic facts that you might like to come to know which never seem to appear in the debate. It is just on the level of everything is awful or fine. It is a lack of analysis."
Mr Davies said only half the 600,000 endowment policies sold annually are attached to mortgages and that "the overwhelming majority of these policies pay out adequately".
He added that the number of borrowers taking out these policies has plummeted in recent years. Endowments accounted for 32 per cent of mortgages in the first three months of 199 from a peak of 83 per cent in 1983, according to the Council of Mortgage Lenders.
The mortgage lending industry has applauded Mr Davies's stance and is calling for holders of endowment policies to take advice before ditching the products. Standard Life and Norwich Union have provided endowments for Halifax, the UK's biggest mortgage lender, since 1988. Halifax said it has been advised by the life insurers that no endowments taken out over the past 10 years have had performance problems.
It said it has seen no evidence of mis-selling, and believes there is still a valid place in the market for these type of policies.
The Association of British Insurers backed the point of view. "Endowments are designed for a job of work," a spokeswoman said. "They are a reasonably low-risk investment product with built-in life cover for a fixed period. Provided that is how they are used, they seem to work well."
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