Property: Why endowments are no longer as safe as houses

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MOST HOMES are bought with endowment mortgages, so alarm bells will be ringing over the collapse in bonuses that insurance companies are reporting. People with loans about to mature need not be too worried - they will have been cushioned by past profits during the boom - although they may receive smaller bonuses than they had hoped for. New buyers, however, ought to think hard about how they finance their deals.

Endowment mortgages are attractive because they are cheaper when interest rates are low. The capital is paid off in one go at the end of the loan period with profits generated from premiums on an insurance policy. But just as the slump should have taught buyers the hard lesson that property prices can go down as well as up, the current insurance crisis shows that no one can guarantee that there will be enough in the kitty to meet the final figure. In the worst case, owners may have to borrow more money to pay for their homes at a time when they expected to be free of debt.

Endowment policies are often thrust down buyers' throats by agents, lenders and builders who earn a fat commission from insurance companies. Most of the current discount deals and fixed-rate packages are also endowment-backed. 'We estimate that around 80 per cent of mortgages are currently endowments,' says Ian Darby, of the brokers John Charcol.

Less than half his firm's turnover, however, falls into this category, with the rest split between repayment, pension, personal equity plans and other schemes. 'Methods of repayment are probably even more important than who the mortgage comes from,' he says. He thinks endowments are unfairly criticised, even though bonuses are sliding, because some policies are expected to perform well. But he agrees that such policies are often over-sold.

Borrowers should be much more rigorous about choosing how they finance their purchases, rather than looking at the up-front interest rate or taking the first thing that comes to hand. Put as much research into the types of mortgage offered as the property itself.

EVEN in these straitened times, a house in one of the Nash rows that overlook Regent's Park, London, could swallow up more than pounds 1m. A more modest way of moving into this fashionable enclave, however, is being opened up by the Crown Commissioners. They are offering the almost unheard-of chance to create a new home on space they are clearing behind Cumberland Terrace.

Prospective builders will have to part with a hefty sum: Allsop & Co is asking more than pounds 300,000 just for the land. And any ambitions of helping to fulfil Nash's original idea of a grand estate of palaces will be stillborn: the plans are for four-bedroom, Gothic-style homes and they will be strictly enforced. Such a design also has historic authenticity, however, because it will match the surrounding houses in St Katherine's Precinct. These were built in 1826, the same year as Nash's Regency villas, but have gone virtually unrecognised in the history books.

THE NEW YEAR bargain rush started early for estate agents and builders, who received about 20 per cent more inquiries compared with the same period last year. 'I am very optimistic about the figures coming in from our show houses,' says John Low, of Ideal Homes. And the National Association of Estate Agents is buoyant after its busiest month for three years.

Counting chickens could be dangerous, however. A similar surge last Easter, in the flurry of post-election euphoria, fizzled out quickly. Wimpey Homes reports no great increase since the autumn interest rate cuts, and Abbey National does not expect the number of deals to return to pre-boom levels for another couple of years.

Ideal considers it a good sign that a third of potential buyers say they still regard a new home as a good investment. But what do the remaining two- thirds believe? Perhaps that homes are for 'nesting, not investing'.