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

[Mercenary Keyboard Warrior]

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

Forget expert, he was world champion at claiming to predict everything and have taken action to maximise his position.

He spent years telling everyone to only get 2 year deals on mortgages. The rates went up and then he said "did you guys not see that coming, I did, I took out a 5 year fix a month or so ago"

 

[dlockers]

In all fairness he is probably bankrupt. He had an endowment like calculator guaranteeing 10% returns forever.

He did make me about £700 on Thungela tho.

 

[dowie]

He spent years telling everyone to only get 2 year deals on mortgages. The rates went up and then he said "did you guys not see that coming, I did, I took out a 5 year fix a month or so ago"

To be fair you were also posting about your resting buy orders all the way down from 40k in BTC on the crypto forums so I'm not sure you're in a great positon to dunk on him.

 

[fullspizz]

We got sold an endowment mortgage for our house back in 1997.
The advice was from an independent financial advisor, who was primarily mortgage biased.
From the outset, he stated the endowment was the better option and gave us a breakdown of what it would achieve. Even performing what they called poorly, it was guaranteed to pay of the remainder of the mortgage.
Around 2002, when our mortgage deal was up, we have a letter from Prudential showing us that there could now be around an £8k shortfall at the end.
I switched to a repayment mortgage then and around 18 months later, sent some correspondence off to the IFA stating how I thought we had been given incorrect information and I had the paperwork to back it up.
I got a payment of around £7k from the endowment policy after some to'ing and fr'ing of letters, some threatening legal action.

As most people who were buying properties around this time have already stated, these were being pushed heavily and with no quick and easy (google) way to check, you relied upon the so called expertise of these IFA's.

 

[Stretch]

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?

Hey, why not go balls deep and let the interest compound and pay the the lot off in 25 years time from the stocks and shares money tree.

It must be a good idea, some guy in a cheap suit told me so.

 

[mattx4]

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?

I don't think you paid any tax on the end lump sum, but I don't know what the cgt rate was at the time either to know if this was tax efficient or not

If your just investing into a fund outside of an isa or similar there's a potential tax liability when you sell up

 

[Stretch]

There is an assumption that advice given by a financial advisor must be good advice, or that it must remain good advice forever and you can wash your hands of it.

No one can know of an investment will make or lose money.

This isn’t a bad summary.

Ironically it is not clear to me that there is much of a "scandal" in the endowment-selling craze of the 1980s and early 1990s. The Association of British Insurers is right to say that most of those who took out endowment mortgages have benefited enormously from the same fall in interest rates that has led many policies to fall short of their projected target figures. The value of their houses has also increased by a multiple of any shortfall they may be facing on their endowments.

If people have squandered all the gains from lower mortgage payments and neglected to make good the inevitable shortfall, it is - or should be - as much their fault as that of whoever sold them the policy.

Although there are clearly some genuine hardship cases, which I don't seek to minimise, in aggregate this seems to me to be a "scandal" without too many ostensible victims.

The fact that events have turned out differently from what was expected at the time - the tax relief that made endowments cheaper has gone, and investment returns are lower than those projected - is what is known as "the real world".

Hiding behind the fact that you heard a salesman tell you 20 years ago that your policy was guaranteed to pay off the outstanding mortgage is a feeble excuse for permanent inaction subsequently - although the media and financial advisers should have latched onto the problem at an earlier stage.

Secrets of Success: The 'scandal' of endowment mortgages

Like most people, I suspect, I have yet to work my way through Lord Penrose's report on Equitable Life, but I have read the key passages and find his version of how the crisis developed entirely plausible. Anyone who followed the industry at the time was aware that Roy Ranson, who combined the...

www.independent.co.uk

 

[Mercenary Keyboard Warrior]

I don't think you paid any tax on the end lump sum, but I don't know what the cgt rate was at the time either to know if this was tax efficient or not

If your just investing into a fund outside of an isa or similar there's a potential tax liability when you sell up

The funds were taxed whilst in the control of the investment companies.
I never really thought specifically what they would have been due to pay tax on, might just have been dividends receipts.
They certainly were not taxable on receipt to the individual at the end.
They could be taxable if cashed in early. Although you would have needed to have had very large amounts I believe.

 

[dowie]

We got sold an endowment mortgage for our house back in 1997.
The advice was from an independent financial advisor, who was primarily mortgage biased.
From the outset, he stated the endowment was the better option and gave us a breakdown of what it would achieve. Even performing what they called poorly, it was guaranteed to pay of the remainder of the mortgage.
Around 2002, when our mortgage deal was up, we have a letter from Prudential showing us that there could now be around an £8k shortfall at the end.
[...]
As most people who were buying properties around this time have already stated, these were being pushed heavily and with no quick and easy (google) way to check, you relied upon the so called expertise of these IFA's.

I don't think anyone is doubting that these things were pushed by dodgy financial advisors looking to make a quick buck, its the other stuff that seems suspect, claiming no annual statements and claiming that they didn't know there were risks/returns could vary. Note for example you do mention:

Even performing what they called poorly, it was guaranteed to pay of the remainder of the mortgage.

So you were aware that the expected return on these things wasn't guaranteed, it wasn't just some savings account or some product giving you a fixed return but it could perform well or could perform poorly etc.

So essentially they've either perhaps screwed up with some of that advice or the provider no longer has the paperwork on file allowing you to make a claim.

There is an assumption that advice given by a financial advisor must be good advice, or that it must remain good advice forever and you can wash your hands of it.

No one can know of an investment will make or lose money.

That's the issue I was getting at with the other guy who posted about his outstanding £1,200. He still did well from the endowment and ended up with a nice return, lower payments than he'd have had with a repayment mortgage so no claim to be made there anyway.

There is some personal responsibility aspect with these things too, you've had these savings over the years, you're still making a return and you know there may be a shortfall... then you need to take action before the end of the mortgage, that's all. And frankly, given house price rises and the effect of inflation these mortgages tended to be quite small and the shortfalls smaller still.

Owing £1,200 due to a shortfall at the end of a mortgage after you've had 20 years of cheaper repayments vs a repayment mortgage (and so 20 years of being able to save/invest more money if prudent) is a nice position to be in.