Millions facing home loan trap

MILLIONS of homeowners face a shortfall on their endowment mortgage, leaving them with an extra bill for thousands of pounds to pay off their loans.

Shocking figures to be published this week show that 34%of endowment holders have been sent 'red letters' - warning them of a 'high risk' that the policy will not meet the value of the home loan, causing financial panic for borrowers.

Research by the Association of British Insurers indicates that the total shortfall in endowment mortgages has reached £60bn - the equivalent of each household having to find an extra £10,000 to pay for their homes.

Red letters have more than doubled since the first batch of red projections were sent out 18 months ago. A further 26% were 'amber' - indicating a 'serious risk' that the mortgage will not be repaid. The value of these policies must grow by more than 8% a year for the mortgage to be repaid. In the current investment climate such a rate looks unlikely. Many people may find they have to sell their homes to pay off their mortgages.

Publication of the figures follows the announcement in March that insurer Friends Provident has slashed thousands of pounds off the value of endowments. The maturity value on a typical 25-year policy, to which the investor has contributed £50 a month, would have been £93,145 last year. Friends Provident said that the same policy will be worth only £77,096 this year.

The ABI figures compare with forecasts sent out between April 2000 and June 2001 that 46% of endowment policies - 15% 'red' and 31% 'amber' - were not likely to repay the policyholders' mortgages.

More than 50% were 'green', which means the mortgage policy is on track. The research will further fuel calls for a Government inquiry into whether the policies were mis-sold across the industry. The crisis has already forced endowment providers to send regular reviews to policy holders - at least once every two years. The Financial Ombudsman Service received more than 14,500 complaints in the 12 months to April.

Endowment mortgages became popular during the Eighties and Nineties. Under these schemes, homebuyers pay the interest on the loan while investing a sum every month in an endowment. Theoretically, the endowment would pay off the mortgage, and even give the householder the possibility of an extra lump sum. However, the predictions of investment growth rates have proved over-optimistic, resulting in the shortfalls.

SUPERMARKETS are considering building flats above stores for their workers who have been priced out of the housing market. An extra 10,000 homes could be provided on sites in London, according to a Greater London Authority survey sponsored by leading stores.

How to make an endowment complaint

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