Nationwide stops offering endowment mortgages

NATIONWIDE, the country's largest building society, has dropped endowment mortgages from its product range as demand for the controversial product slumped.

The decision by the number-four building mortgage lender came as NatWest, the clearing bank, said it it was considering whether to stop offering endowments, which have declined in popularity after severe criticism from consumer groups.

"On average each of our consultants is arranging only one endowment policy every nine months," said Bill Tonks, managing director of Nationwide Investment Group. "Our decision does not imply criticism of endowments. But it is not an effective use of resources."

The building society said just one in fifty of its new mortgages were being backed by an endowment policy.

NatWest said endowment mortgages accounted for only 10 per cent of new business, and it was reviewing whether the products remained suitable.

Although one in four new mortgages sold in the third quarter was an endowment mortgage, in the past few months Halifax, Britain's biggest mortgage lender, has ditched endowment home loans, saying demand had waned since it adopted an Individual Saving Account-based plan as its flagship product.

Abbey National, the number-two lender, said endowments had slumped to 5 per cent of new sales, compared with 30 per cent for ISA-backed mortgages.

The popularity of endowments has fallen from its high point in the late 1980s, an era when high inflation eroded the value of mortgage debt and it made sense to put off repayment as long as possible. Their reputation has been undermined by suggestions that high charges combined with different economic conditions mean most new policies are unlikely to earn enough to pay off home-buyers' mortgages.