What Is Mis-Sold Endowment Mortgage? And Can I Make a Compensation Claim?

Ian Lewis[1]

Ian Lewis

Money Savings Advice, What Is Mis-Sold Endowment Mortgage? And Can I Make a Compensation Claim?

Buying your house should be an exciting experience. You should feel a sense of achievement and pride that you’ve achieved your goal of homeownership. Yet, for some, buying a house means becoming a mis-sold mortgage victim.

You’ll use your mortgage to purchase your house if you don’t have all the money up-front. Very few people will ever have the money to buy a house outright. But, there are times when mortgages cause extra trouble for unsuspecting borrowers.

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What Is a Mortgage?

A mortgage is a loan. It’s usually the biggest form of debt a person ever takes on. You use the loan to buy property or land, then pay it back over time. The average mortgage takes 25 years to repay.

In order to get a mortgage, you’ll likely need a deposit. This is money that you’ve saved on your own, to put towards the cost of the house. It’s usually advised to save at least 10% of the value of the property. Your mortgage covers the difference between your saved deposit and the total cost of the house you’re buying. The more you can pay up-front with a deposit, the lower your mortgage and the higher your chance of being approved to borrow money.

Types of Mortgages Available

There are several different types of mortgage product to choose from. Choosing the most suitable product might take time. Don’t rush into any decision when you’re buying a house, as you’re dealing with a large amount of money. You could be in debt for decades, so make sure you understand exactly what you’re getting yourself into.

Repayment Mortgages

With a repayment mortgage, every month, you’ll pay enough to clear that month’s loan interest and to pay off a bit of your debt. With this type of mortgage, your loan keeps reducing, and your debt will decrease over time.

Interest-Only Mortgages

With an interest-only mortgage, you’re not clearing a debt and reducing what you owe overall. Instead, you’re simply covering the costs of the interest that would otherwise mount up. Just clearing the interest means that your debt won’t be reducing over time. The essential costs are lower, but you’ll stay in debt indefinitely. Also, as your capital doesn’t decrease, your interest each month stays the same.

If you choose this type of mortgage, you’ll need a plan for how you’ll reduce your mortgage capital. Ideally, you’ll make regular overpayments to reduce your mortgage debt. However, lenders can’t simply trust that you’ll make overpayments when you need to.

Many people rely on rising house prices, hoping that their house will be worth more than the mortgage by the end of the mortgage term.

There are several ways that you can repay the capital. Some choices are more popular than others.

Savings

Many people rely on their savings as a way to repay their mortgage debt. This can be a great option with a lot of flexibility but might require willpower. You must ensure that you don’t use your savings to pay for other things in the meantime. 

Stocks and Shares ISAs

Relying on investments can be risky. You can never be sure that you’ll come away with all the money you need. Yet, a Stocks and Shares ISA will usually be an investment product you can have faith in. The tax-free wrapper will help you make the most of your money, so you can use it to repay your loan.

Pensions

If you time your mortgage right, you can use retirement savings to help repay what you owe. Lenders might be happy to approve this option, as you can show your pension savings already in place for your retirement. Lenders can trust that you can’t access this money and spend it too far in advance, so they can be sure that the money’s sitting safely in your pension fund until you can use it.

Other Property and Assets

Like other property and assets, anything else you own can be used to back your mortgage borrowing. These items can be sold to repay your mortgage capital, so you’re not left with any debt.

What Is an Endowment Mortgage?

An endowment mortgage was a type of interest-only mortgage. These mortgages are no longer offered, but you may have had one in the past or at least have heard of them.

Here, your mortgage includes a connected savings product. Some money is invested in the endowment product, which also includes life insurance. Your invested money should build up over time if your investments are successful. You’ll then have enough money to repay your mortgage debt once your mortgage term comes to an end. If you die during your mortgage term, the attached life insurance will clear your mortgage debt automatically. 

Endowment mortgages sound very appealing, but there was a risk that your investments wouldn’t earn enough money to clear your mortgage debt at the end – something that has come to pass for many. When endowment mortgages were at their most popular, people hoped that their debt would be cleared with extra money left over.

How Do I Know if I’ve Been Mis-Sold a Mortgage?

There are many possible ways that you might have been mis-sold a mortgage. A mortgage isn't mis-sold if your circumstances change and you find that you're unable to pay it. It could, however, have been mis-sold if the product wasn't suitable initially.

If you entered into any mortgage agreement but didn't fully understand the product, or if you took on financial risks that your lender didn't explain; there's a chance that your mortgage was mis-sold.

What Is a Mis-Sold Interest-Only Mortgage?

If you were offered an interest-only mortgage, the person that sold it should have made it clear that your debt wasn't going to be reduced. You should have been aware that your monthly payments would only be covering your interest.

Your broker should have provided the option to compare repayment and interest-only mortgages. This would have allowed you to see the different costs, both monthly and overall.

In some cases, people need a repayment mortgage after their interest-only mortgage. This allows them to work on clearing their debt if house values don't rise enough. Your broker or lender should have explained that this might have ended up being needed.

Common complaints about mis-sold mortgages include people that can't afford to repay the capital or want to switch to a repayment plan but struggle to do this.

What Is Mis-Sold Mortgage Terms?

If you were offered a mortgage that would last beyond retirement age, your mortgage might have been mis-sold. Your broker or lender should have made you aware that repayments would continue past retirement age, so you could consider the impact of retirement on the payments you could afford.

What Is Mis-Sold Remortgaging?

Your mortgage may have been mis-sold if you were encouraged to remortgage to clear any debts you held elsewhere. When a short-term debt gets added to your mortgage, it becomes a long-term debt instead. This may lead to extra interest charges and affect your life for much longer. If this wasn't fully explained when you remortgaged, then your mortgage may have been mis-sold.

Mortgages Without Budget Analysis

Your lender or broker must have made sure that the mortgage they sold was affordable. They should have done this by reviewing your budget and analysing income and expenditure. It should have been clear how much money you'd have a spare every month after your bills were paid. This analysis would stop you from committing to repayments you couldn't afford. If your budget wasn't properly checked, your mortgage might have been mis-sold.

Mis-Sold Mortgage Broker Fees Explained

Brokers make their money by connecting lenders with borrowers. They charge fees and earn their money through commission. If you used a broker, you should have been aware of the fees you'd pay for their service. If fees were added to your mortgage so that they'd stay hidden, you could be paying interest on those fees. In this case, the mortgage could have been mis-sold.

Mis-Sold Endowment Mortgage Explained

If you had an endowment mortgage, there’s a good chance your mortgage was mis-sold. Many customers were told that their attached investments would grow enough to cover their capital. Later, they discovered that the money they’d invested wasn’t doing as well as they expected.

If you have an endowment mortgage, it may have been mis-sold if you weren’t made aware of the risks. You should have been prepared for the significant chance that your investments wouldn’t grow as you needed. You also should have been made aware that you’d need a back-up plan – a way to repay your mortgage if your endowment wasn’t successful.

Who Is Responsible for a Mis-Sold Mortgage?

If you complain about a mis-sold mortgage, the Financial Ombudsman will want to check that the lender or broker acted honestly. It’s a broker’s responsibility to make sure that the mortgage they sold was a suitable product. Lenders are also responsible for checking that the borrower understands the mortgage and that there is a plan in place for repaying the mortgage capital.

What Do I Do if a Mortgage Was Mis-Sold?

If you believe that your mortgage was mis-sold, you may be entitled to claim compensation. You’ll need to be able to explain exactly how the mortgage product was mis-sold. You’ll need proof and evidence, so it’s important to find as much paperwork as you can uncover.

How Can I Claim Compensation for a Mis-Sold Mortgage?

If your mortgage was mis-sold, you’d need to gather evidence supporting your mis-sold mortgage claim. Look for old paperwork to show that the small print didn’t explain your mortgage terms. You’ll need to show that important details were missing from the documents you signed or that things were left unclear, so you didn’t know what you were getting into.

The more evidence you can gather, the more likely your claim will be successful. You can contact a solicitor to handle your claim on your behalf.

Do I Need a Solicitor To Make a Compensation Claim?

It’s possible to make a compensation claim alone if you think that your mortgage was mis-sold. If the broker or lender agrees with this claim, the process could be relatively easy. Otherwise, you have the option to contact the Financial Ombudsman yourself.

A solicitor isn’t needed for a compensation claim, though they can increase your chance of success. They’ll help you save time, as they already know the law and won’t need to do as much research. They can also help you to check that you’re claiming every bit of money you’re entitled to, though this is only worthwhile if the solicitor’s costs don’t wipe out the extra compensation.

Making a Mis-Sold Mortgage Compensation Claim

If you want to make a mis-sold mortgage claim, the first step is to contact the seller. This will be the lender you went to directly or the broker that acted as the middle man. Write a formal letter of complaint, explaining why your mortgage was mis-sold and how much you believe you’ve lost financially.

If your complaint isn't resolved to your satisfaction, or if your lender or broker doesn't respond within eight weeks of receiving your letter, you can complain to the Financial Ombudsman, who'll investigate on your behalf. The Financial Ombudsman's service is free and impartial, which means that they'll make a final decision about who's to blame and how much should be paid.

Is There a Time Limit for a Mis-Sold Mortgage Compensation Claim?

You have up to six years from the date that the mortgage was taken out in which to make a mis-sold mortgage claim. You should start as soon as possible, as your claim could take a while.

Many people aren't immediately aware that their mortgage has been mis-sold. In fact, you might not find out the truth until your mortgage is coming to an end. If you've spent 25 years with an interest-only mortgage but then have realised you can't repay the capital, this might suddenly make you aware that your mortgage was initially mis-sold.

In exceptional circumstances, where a mortgage was mis-sold, and you didn't find this out straight away, your time limit for a claim could be extended. If this happens, you can claim within three years of becoming aware of the mis-selling.

Deadline for Mis-Sold Endowment Mortgage Claims

For many people that were mis-sold endowment mortgages, the deadline has already passed. Lenders were told to send letters to their customers to warn them that their investments wouldn't get the returns they were hoping for. If you received this letter more than three years ago, you're no longer able to claim. This letter is considered to have made you aware that your endowment mortgage was mis-sold.

How Much Compensation Will I Receive?

Financial compensation for a mis-sold mortgage will be based on your unique situation. Two different claimants may be offered very different compensation. Your compensation will be based on the financial loss you've suffered and calculated based on additional costs and extra interest that you might have been charged.

Your compensation is intended to return you to the position you'd have been in without mortgage mis-selling. As part of your claim, calculate how much money you've lost overall.

How Is the Compensation Claim Calculated?

If your mortgage is found to have been mis-sold, then your current financial situation will be assessed. How much debt do you still have to pay on your mortgage, and has the bad advice caused you to suffer other financial penalties?

You’ll then get an estimate of how your situation would’ve been improved had you been given better advice and taken on a more suitable product. You should then be compensated to bring you in line with that predicted scenario.

This doesn’t mean that you can claim that any personal debt you’ve taken on is a result of not having as much money due to bad advice. Only your financial circumstances that have been directly influenced by the mis-selling of the mortgage will be rectified in your compensation claim.

How much does it cost to make a compensation claim?

The cost of making a compensation claim for your mis-sold mortgage or endowment policy varies depending on your approach. If you handle everything yourself, then there is no cost involved at all. You’ll be awarded the full sum of compensation you are due, with no fees at any stage for the inquiry into the mis-selling.

If you choose to have a firm represent your claim, then you could have to pay a large percentage of your compensation to that firm. Often it’s around 25%, with VAT on top of that. So if you won £45,000 in compensation, you might only get £31,500 of that money back yourself.

That’s a huge sum of money to lose. While it’s nice to have someone else do all the work for you, the likelihood is that you’ll still need to be involved – finding contracts, searching through correspondence and more.

If you have the time, then you should make a claim yourself – you’re just as likely to win your case, and you’ll be able to get all of the compensation back that you are owed.

Who Is Responsible for Paying Compensation?

As part of your initial complaint, you’ll need to decide who’s actually responsible for your mis-sold mortgage. Did you go directly to a lender or apply for your mortgage through a broker?

If you used a broker, it might not have been obvious, especially if they hid their fees, so you might need to do some research into the provider you used.

If you took out your mortgage a long time ago, finding out where your complaint should be sent might mean looking through your paperwork first.

What if I No Longer Own the Property That Was Mortgaged?

Often, people only realise that their mortgage was mis-sold when they’ve moved on to somewhere new. If that’s the case for you, then you can still make a claim, just as you would if you were still the owner of the property.

If you couldn't afford the property, you purchased and were forced to leave. As a result, this could just be extra evidence to show that mortgage mis-selling put you into financial difficulty. It may lead to more compensation overall if your claim is successful.

What if the Lender or Broker Is No Longer Trading?

If the lender or broker you used is no longer trading, you can still get compensation. In this case, your money would be paid by the Financial Services Compensation Scheme (FSCS). Compensation will be limited to a maximum of £85,000 for your claim.

Claims through the Financial Services Compensation Scheme can be for mortgage advice received after October 2004 or for endowment mortgages mis-sold since September 1988. It can also be paid for all mortgages and mortgage advice, where the provider has gone bust since April 2019.

Endowment Mortgage Shortfall Explained

If you took out an endowment mortgage, the plan would've been for the endowment payout to cover the remaining balance on your mortgage. Your actual mortgage would only have covered the interest while the capital balance remained.

However, the endowment was an investment tied to stocks and shares, and it might not have performed as it should have. In these cases, when your mortgage and endowment end, you might have a shortfall – leaving you with not enough money to pay off the mortgage. And your lender won't be happy to sit and wait for you to find the money over a couple of years.

If you're still on an endowment mortgage plan, you need to check on your investments' progress. If a shortfall looks likely, then you might have a claim for a mis-sold endowment if that wasn't explained to you properly. You also need to act quickly to find a solution now, such as converting to a repayment mortgage if you can or finding other ways to start paying down the capital.

What Happens When Your Endowment Mortgage Expires?

When your endowment term comes to an end, the company you took it out with will write to you to inform you of the maturity date and the amount of money you'll receive. At this point, you need to compare it to the outstanding balance on your mortgage to see if it's enough to cover it. If not, you'll need to contact your mortgage lender promptly to negotiate your next steps.

Regardless of whether there's enough to invest, the letter will detail the process for you receiving your funds. It might also offer you further investment opportunities with the money you've built up, something that you might wish to consider if you've got more than you need to clear your mortgage. Once the mortgage debt is cleared, anything left over is yours to do with as you see fit.

It's always best to seek financial advice on the best options for any large sum of money. So whether you need help clearing your mortgage if you've got a shortfall or you've got extra cash to spend, a financial adviser will point out the most prudent solutions based on your personal circumstances.

If you do have a shortfall, this is the time to make a claim for a mis-sold endowment mortgage if you can prove that this wasn't properly explained to you when you took out the plan. You might be due compensation that would cover your mortgage's remaining costs so that you don't have to contend with outstanding debt.

Which Lenders Are Guilty of Mis-Sold Endowment Mortgages?

Many different banks and lenders got together to sell endowment mortgages in the 1980s and 1990s. They were a very widespread product, as popular then as tracker mortgages have been in more recent years. They weren’t limited to a niche market or, indeed, a select few lenders.

So if you took out a mortgage during this time, check whether it was an endowment policy and if so, check whether you think you might have been mis-sold it. Any lender could have been guilty if they didn’t properly educate you on the risks of the product, leaving you with a shortfall you weren’t aware of.

Did Endowment Mortgages Have PPI?

Endowment mortgages did not have Payment Protection Insurance (PPI), although you might have seen something like ‘payment protection’ on your documents. It’s not the same thing, it wasn’t an insurance policy to cover you in the case of you not being able to make your payments, so you couldn’t make a PPI claim on your endowment the same rules of other PPI claims.

Endowment mortgages were usually packaged together with a life insurance policy to cover the debt in case you died before you were able to see the endowment mature and clear the capital debt owed. However, they did not generally come with PPI. If you think you had PPI on your life insurance as part of your endowment mortgage, then speak to a financial adviser who can help you work out if you have a claim.

If you need any further advice on mortgage and endowment mis-selling, then we can help connect you to a financial adviser. They’ll be able to look over your mortgage documents and related products and identify where you might have a claim or where there is evidence that your claim could fail.

How Can Money Savings Advice Help You With an Endowment Mortgage Compensation Claims?

Here at Money Savings Advice, we have partnered with one of the UK’s leading Compensation claims specialist, and they have already helped thousands of our readers get the compensation they deserve for mis-sold endowment mortgages.

Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to them, click on the button below, answer the very straight forward questions.

Ian Lewis[1]

Ian Lewis

Ian Lewis is one of our specialist financial writers. Ian has over 15 years of financial writing experience, having worked for some of the largest financial publications in the UK covering topics from mortgages, equity release, loans and financial claims, to name a few.

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