Outlook: PIA Ombudsman

POOR TONY Holland. The Personal Investment Authority Ombudsman has really gone and put his foot in it this time. In an interview with the BBC yesterday he said that those facing a shortfall on their mortgage endowment policies might be in line for compensation.

Since there are an estimated half a million households in this position, possibly more, Mr Holland is going to be inundated with claims and now faces the possibility of spending the rest of his time as Ombudsman doing little else other than sifting and investigating them, case by case.

As it happens, Mr Holland was saying nothing new. Anyone who believes they have been mis-sold an endowment mortgage has always had the right to complain, and if the case is upheld, would be entitled to their money back.

What is new is that he was highlighting this entitlement against the backdrop of the recent deluge of publicity about poor value endowment policies. For those that have been selling these policies - the insurance industry, IFAs and mortgage lenders - there is now a real possibility this will turn into something akin to the pensions mis-selling scandal, and end up costing them accordingly.

However, there are some major differences. In most cases, it would be extremely hard to prove that the occurrence of a shortfall means the endowment mortgage was deliberately mis-sold. Certainly it was the case that the risk of shortfall was rarely pointed out to mortgage buyers, that most of those who bought such policies were indeed encouraged to believe there would be a considerable surplus, and that the industry used some highly inflated assumptions in reaching these estimates. Rarely was the buyer given the option of an alternative capital repayment mortgage.

Even so, it is not clear this amounts to mis-selling as such. With pensions mis-selling, the issue was much more cut and dried. In that case, individuals were persuaded to swap their occupational schemes for personal pensions even though it was financially disadvantageous to do so.

The Financial Services Authority is in the middle of a structured process of visits to the big endowment sellers at the moment. It could usefully use those visits to establish where the boundaries of mis-selling might lie, and who might therefore be entitled to compensation. As things stand only confusion reigns.

Outlook@independent.co.uk