Mis-sold Mortgage Endowments

• Thoroughly ascertained the consumer’s circumstances and requirements by completion of a fact find and act upon this information
• Ensured that the consumer was aware and accepted the risk of the policy.

• They were made to look cheaper than repayment mortgages
• The payment amounts were often set up at a low level with the consumer as they were encouraged to expect unrealistic investment returns
• Consumers were not made aware of the risks associated with the product
• Information was misleading and unclear
• Note: Endowments paid large commissions to advisers meaning they were heavily incentivised to sell them.

The Financial Ombudsman Service (FOS) has issued technical guidance for calculating redress for mis-sold Mortgage Endowments.

• Compensation is intended to put the consumer in the position they would be in if they had never taken out the endowment policy.
• Usually this would be their position if they had taken out a repayment mortgage.
• Compensation should include paying any mortgage switching fees or early repayment charges, or any extra amount for replacement life insurance if appropriate.

The calculations for redress are complex – usually they will compare

• The total paid in endowment premiums and interest
• With the total payments that would have been made on an equivalent repayment mortgage

This gives the payment comparison part of the calculation

• The current surrender value of the endowment policy;
• With the amount of capital that the consumer would have paid off a repayment mortgage

This gives the capital comparison part of the calculation.

Together these calculations show the overall loss faced by a consumer. Any savings made are a bonus and not taken into account – unless they have been put aside into a separate savings plan.

The calculations must take into account circumstances where there is a difference in the timescales of the mortgage and the endowment, or where the consumer has surrendered their policy, or paid off their mortgage.