Er, no. A Red Alert Letter Day, actually. Yes, it's that time of year again when I get my annual letter from whatever is the latest financial quango set up to advise the hapless public on how to manage their money and become more prosperous (hot tip: get a job with a quango). This year it's called the Money Advice Service and they advise me that my endowment mortgage is yet again on red alert, meaning that there is a high risk that the endowment policy will not pay out enough to cover the mortgage when it matures in 2013. High risk? Really? I'd say it was a dead certainty.
What those nice people at the MAS don't know is that we ditched the linked mortgage a couple of years after we signed up for it in 1988. Full credit to Mrs. G on that one. She switched us into a LIBOR linked repayment mortgage (also, now ditched after subsequent house move) and saved us oodles of £££ in the ensuing years, despite a hike in interest rates. However, we decided to keep the policy going as a savings vehicle. Maybe that wasn't the best decision, but this was before the endowment scandal really got legs.
We were sold the endowment by a salesman during a home visit and we just took everything at face value, but we have never claimed to have been missold because we felt we weren't. We were naive, but not misled. We really can't remember the details, but I am sure the issue of the endowment policy not paying out enough was covered. Probably something like this.
Us: What happens if the policy does not pay out enough?
Salesman: (laughing) Well, I have to point out that the return is not guaranteed, but frankly the chances of it not being enough are about as likely as a major investment bank going bust or the head of the IMF being caught with his trousers down.
Us: Ha, ha.
Salesman: Seriously, though. I have never known the payout not to be substantially greater than the mortgage and I've been in this business, man and boy, over 30 months. You are borrowing £75,000, but in practice we are talking about a return of probably £90,000, maybe more. after all, this is a "with profits" policy and it's "low cost", so it's a bargain. But remember, not guaranteed, ha, ha! So, if you'd like to take the pen . . .
Us: Yes, yes, yes, please, please, please! Where do we sign?
Halcyon days. £75,000 versus £90,000 over 25 years? There's little margin for error there. It should have set alarm bells ringing in my head, but it didn't and not in anyone else's either, so it seems. Well, the actual payout looks likely to be about £45,000 for very nearly £100 per month over 25 years or just 60% of the projected minimum value. That return is about the same as we would have obtained from a so-so bank or building society savings account over the period, and we have also had life cover, so we don't feel too badly about it. Moreover, we have never had the worry of carrying the linked mortgage. Not like some, though.
So, for those who think that PPI misselling, for example, is an unusual blemish for the financial services industry, think again. The trouble is that the majority of those that did the selling really believed in their own propaganda because they were badly trained and, like their customers, just didn't have the first clue about the basics of finance.
When I first bought a house I went for an endowment. Why? because it was what everyone did. We bought a house at that moment where the cultural knowledge was that an endowment mortgage was the mortgage to get. So despite my father's advice I got one. Later I knew better.
ReplyDeleteThe thing that I find troubling is that the practice of selling endowments was endemic and nothing was done about it for so long. Now I see the same thing with payment protection. Government has many roles but I figure that some kind of reasonably rapid response to institutionalized scammers should be a part of their remit.