Discussion about mis-selling of endowment mortgages in the 80s and 90s

[dowie]

We got £12850 off the endowment for our mortgage so over 20 years we got £53.50 a month back.
Take off the £1150 we owed and that turns out to be £45 month we got back.

That's muddled, the endowment is separate. You got back £53.50 in the end for every £20 you paid into it... that it didn't cover the full amount of the mortgage and you had another payment to fully cover the doesn't change the fact that you got that return.

If we had paid a 'normal' mortgage we would have nowhere near have paid an extra £45 a month on top of our £60 so we did OK, did make a bit of money back and didn't have a right to claim.
Some people however got totally ripped off.

A minority AFAIK, most people ended up with an endowment that did cover their mortgage. Some of those people perhaps shouldn't have had a case but were able to claim simply because the companies had lost the paperwork showing that the risks were highlighted. Taking a loss on a financial product (or not getting the return you expected) isn't in itself a good reason for compensation.

The compensation is just to people into the position they'd have been in had they instead taken out a repayment mortgage (so paying off the capital and reducing the interest on the loan over time) not to bring them up to whatever lump sum bonus amount they claim the salesperson promised, so it seems you've basically had 20 years of making lower payments than you'd have had to make to have been in that same position with a repayment mortgage.

The Dell Boy advisor may have promised unicorns to you that didn't materialise but you still made a return from the investment and were better off it seems.

 

[jaybee]

My parents went through this. I can't remember the timings or shortfall, but I remember it being significant and highly stressful for them.

 

[Raymond Lin]

I remember my dad asking me to translate a letter to him about this....I was a kid and besides doing a literal translation, bar a few words like i had no idea what Endowment meant or know that word in Chinese...it all went over my head. I am not sure he did get any money back as he wouldn't have been too clued up on the whole legal side of things.

 

[SexyGreyFox]

The Dell Boy advisor may have promised unicorns to you that didn't materialise but you still made a return from the investment and were better off it seems.

Yes, I have never argued that, I'm just arguing how we and 1000s of others were sold it.

I wish I could explain how back in the early 80s and earlier how we bought things.
There were no Guitar and music gear magazines or some type of magical community online, I had to physically go to music shops all around the country and talk to 'experts' trying gear out before buying. Now I just buy stuff without testing because I have all the available specs and read comments of many users.
Buying my first video recorder in (I think) in 1980 I had to go to shops and look at specs but I did have a total mistrust of salesman in those shops and did my own homework.
If I needed financial advise I had to go to a bank or Building Society, for at least 25 years I could go online and get it from there or here right now.
Back in 1980 I had a drummer who was a Financial Adviser, I had £5000 I wanted to invest and his first question was "Can you afford to lose it?" which I replied "No" and he explained what would happen with my money so I didn't invest.
If the Financial Adviser told us that in 1983 we would have gone on a normal mortgage.

 

[Pipe & Slippers]

It's not an IFA in these cases being mentioned in the thread but an advisor at the bank/building society, they'd have leaflets, promotional material in branch etc.. you'd have some paperwork to take with you. I don't believe for a moment that someone took out a mortgage, had no paperwork and made monthly payments for 20 years with no annual statements... they're just seeing a payment go out of their account every month and have no records of the product it is for?

In my case it was an IFA, and I even worked with the guy before he became an IFA - lol

 

[peterwalkley]

Yes and as far as I'm aware, there were no predictions. If there had been, I'd have dealt with it.

Similar here. The paperwork is long gone as I shredded it all years ago when the mortgage was paid off. My memory is that nothing other than showing 12 monthly payments in and the expected payout EXACTLY MATCHING the mortgage amount was in the annual endowment statement. This changed about 8 or 9 years in when the regulations were updated and that's when the red warnings appeared. I did nothing about the warning for a couple of years for a couple of reasons (wasn't clear if this was just a "bad" year and I knew I was going to move anyway so would need to make changes).

That's also when it was clear that the first couple of years of my payments had gone to commission instead of funding any investment. I have a gut feel that had the commission payments been spread over a longer term, mine would have had a significantly better payout and not needed a red warning at all. Time is your biggest friend for investments like this and even 50% of that first 2 years going into my (eventual) pocket instead of commission would have helped. The front loading really sucked.

I later switched to repayment when moving house and was lucky that the timing co-incided with a huge increase in income for me so the hit was fairly easy to absorb.

The other one I just remembered is an industry of parasites popped up to buy your crap endowments off you for a crap price ! Hopefully not too many people fell for that one. Having been stiffed once by institutions that were supposedly trustworthy, most of us had wised up to not get ripped off a second time by a bunch of ambulance chasers.

Thinking about this long thread ... I'm grateful the younger generation have the internet for research and easy comparisons, the legislation and protections we didn't have and no loyalty. Institutions all completely blew it out of greed. I've got 2 girls and they will gain from our generation's pain.

 

[dowie]

Similar here. The paperwork is long gone as I shredded it all years ago when the mortgage was paid off. My memory is that nothing other than showing 12 monthly payments in and the expected payout EXACTLY MATCHING the mortgage amount was in the annual endowment statement.

That's not similar though, the others are claiming they had no annual statements for their endowment policies but you're claiming you not only had an annual statement from your endowment policy but it also contained a projection claiming it was exactly on target (doubtful).

It would surely show you the current value of the policy too if you were to surrender it and the monthly payments you'd made?

 

[peterwalkley]

That's not similar though, the others are claiming they had no annual statements for their endowment policies but you're claiming you not only had an annual statement from your endowment policy but it also contained a projection claiming it was exactly on target (doubtful).

It would surely show you the current value of the policy too if you were to surrender it and the monthly payments you'd made?

Paperwork gone so I can't prove anything, but my memory is that the information I was being given changed due to the regulations changing. It was a shock at the time hence it sticking.

Modern regulations and ways of doing business were not in place back then - as has been explained multiple times by multiple posters who were actually there.

 

[Mercenary Keyboard Warrior]

Paperwork gone so I can't prove anything, but my memory is that the information I was being given changed due to the regulations changing. It was a shock at the time hence it sticking.

Modern regulations and ways of doing business were not in place back then - as has been explained multiple times by multiple posters who were actually there.

This is a fair point.
The legislation did change over a period of time, so its very possible some people here had the misfortune to be at the lowest point so to speak, where as many of us will remember the later stages when a lot of the issues were also semi fixed.
I don't think I have ever seen a timeline of how the legislation and also the actions of the industry changed over quite some time.

Although from what I have seen I think peak endowment was very late 80s/early-mid 90s and that repayments were very much still the majority until and after those points in time.
It was around 1990 that I became interested and when I took my first mortgage and when I looked I went, this endowment stuff looks risky, I am going repayment.
And that was the time when everyone was saying I was an idiot and it was cheaper to do endowment and not only would your house be paid off you would probably have enough for a new car.
It never made sense to me and unfortunately ended as I expected.

I still cannot personally reconcile how people didn't think this is too good to be true, but then I can't reconcile how people get confused by financial things now and only seem to be picking up on the good bits and not the bad bits.

 

[moon man]

At one time Aviva stated over 90 percent of their endowments would fail to pay off the loan amount.
People saying how can people be so dumb well maybe look at your own pension fund, how's that been doing? The take up rate was 80 percent at one time when people went to see someone at the bank they tended to trust what came out of their mouths
Guess there was a bit of the greed is good involved but then the tax relief was slashed and the bull market ended as it always does
Anyway I got compo it was just ticking the right boxes.
Some cashed in early for peanuts not understanding how heavily front loaded they were and as said the final bonus was a mystery

 

[dlockers]

People saying how can people be so dumb well maybe look at your own pension fund, how's that been doing?

What has that got to do with anything? Pension contributions are tax free as well, so unless you making 20%/40%/45% (or 66% at the magic £100k mark!) before you've even got going, then a lot better than someone day trading funds for example.

 

[Mercenary Keyboard Warrior]

At one time Aviva stated over 90 percent of their endowments would fail to pay off the loan amount.

That would have been completely predictable. They would have reflected the much lower investment returns (numerically, not inflation adjusted).

What has that got to do with anything? Pension contributions are tax free as well, so unless you making 20%/40%/45% (or 66% at the magic £100k mark!) before you've even got going, then a lot better than someone day trading funds for example.

As ever this of course depends on what timeframe is being considered. Not that long ago (late 22) my pension investment value was falling faster than I was adding to it. Such is the problem of assets invested.
The last 6 months its the opposite, the gains have exceeded my contributions.

I think many still struggle to unhitch the underperforming aspect from the it was the wrong product aspect.
They of course underperformed compared to expectations when inflation (and hence monetary if not in real terms) stock market returns were high.

Even now people effectively attempt to use the equivalent of an endowment to invest in the stock market for higher returns than the interest rate they are paying on their mortgage.
The principle is sound if your willing to take the risk that you may fall short. Although its quite difficult to get an interest only mortgage now.
Again, that was spoiled by the people who didn't realise they were not paying off capital. Not sure what they thought interest only mean't.

 

[dowie]

Paperwork gone so I can't prove anything, but my memory is that the information I was being given changed due to the regulations changing. It was a shock at the time hence it sticking.

Modern regulations and ways of doing business were not in place back then - as has been explained multiple times by multiple posters who were actually there.

Yep re: projections. But that isn't what they're claiming, as I said they're claiming they didn't receive annual statements at all whereas you're claiming you did in fact receive them but that the projections they included were duff ones simply showing that the projected returns were exactly on target.

 

[dlockers]

Question - how did endowments differ to the Psycho Sonny method of interest only and then investing the remainder in the a fund? Not much other than exorbitant fees?

 

[Kenai]

Question - how did endowments differ to the Psycho Sonny method of interest only and then investing the remainder in the a fund? Not much other than exorbitant fees?

Well, endowments were promised to make a massive return by magic rather than investing. Apparently.

 

[Mercenary Keyboard Warrior]

Question - how did endowments differ to the Psycho Sonny method of interest only and then investing the remainder in the a fund? Not much other than exorbitant fees?

In theory not at all.

What people claim is that they had no idea it was somehow an investment and not a simple savings account paying unrealistic levels of interest.

 

[dowie]

I don't think I have ever seen a timeline of how the legislation and also the actions of the industry changed over quite some time.

Although from what I have seen I think peak endowment was very late 80s/early-mid 90s and that repayments were very much still the majority until and after those points in time.
It was around 1990 that I became interested and when I took my first mortgage and when I looked I went, this endowment stuff looks risky, I am going repayment.
And that was the time when everyone was saying I was an idiot and it was cheaper to do endowment and not only would your house be paid off you would probably have enough for a new car.
It never made sense to me and unfortunately ended as I expected.

AFAIK in 1988 there was a required document they had to provide and then this was updated again in 1995.

They generally were still better off than repayment mortgages anyway AFAIK, even if the supposed returns weren't as spectacular as the salespeople claimed.

For example, see the warning letters, plenty were fine: https://www.theguardian.com/money/2001/jul/02/endowments

At the end of May this year, 99% of letters had been issued and 54% of those were green, meaning the endowment was likely to meet its target and pay off the loan. Just over 30% were amber, meaning investment growth needs to be above the projected 6%, but not more than 8% to meet its target. Just over 14% were red. Red letter holders face a likely shortfall with investment growth needed at more than 8% to pay off the loan.

Also, of those who didn't cover their mortgage, they don't necessarily have a claim if the paperwork is there showing they were informed of and agreed to the risks.

Plus, as was apparently the case for one poster in this thread, even though he'd got a return lower than the principal on his mortgage he'd paid of more than he'd have paid off had he been making normal repayments (essentially the endowment saved him more money over those 20 years).

They make plenty of sense if you're happy with the risk and were sensible, especially given the tax relief at the time. Even in the cases where people's investments didn't hit the target, they were still in a position where they could save more elsewhere.

 

[dowie]

Question - how did endowments differ to the Psycho Sonny method of interest only and then investing the remainder in the a fund? Not much other than exorbitant fees?

Psycho Sonny doesn't get tax relief on the funds he invests himself + doesn't get life assurance bundled in with the deal that pays off the amount in full.

In principle it's kinda the same idea but without the tax advantage.

 

[peterwalkley]

Question - how did endowments differ to the Psycho Sonny method of interest only and then investing the remainder in the a fund? Not much other than exorbitant fees?

Genuine LOL if you're quoting PS as an expert on anything. Made my day mate, thank-you.

 

[dlockers]

Genuine LOL if you're quoting PS as an expert on anything. Made my day mate, thank-you.

Well at least we now know he was two clicks up from some folk w.r.t financials