Just read a story on the BBC website – here’s an extract –
“The rise and fall of endowment mortgages has been a feature of one of the most notorious mis-selling scandals in the last few decades.The industry grew as a result of tax breaks, and hit its peak towards the end of the 1980s when it became the fashionable home loan for those getting on the property ladder. The estimated peak was more than a million policies sold in a single year. The original growth estimates on these policies were simply way too optimistic, while the funds just didn’t perform as expected”
Now a couple of thoughts spring to mind – this is a problem which I used to warn about back in the day when I used to provide financial phone-ins on Radio London, Radio 2, Radio 5 and LBC etc. On air I would point out this danger and, quite often, irate financial advisers would ring up to angrily claim that I didn’t know what I was talking about, denigrating their products – so in one sense it is nice to be proved right after so many years, but in another it makes me sad that so many people were lured into these fundamentally risky products.
It is probably too late for people who didn’t seek compensation when it was offered for mis-selling a few years back to make claims now but one essential part of the sorry saga is now being conveniently forgotten. Under industry rules at the time financial quotations had to use one of two rates of return for illustrative purposes and when this scandal was brewing the illustrative rates of return were 11% and 13% – wildly over-optimistic for a 25 year term, as most of these mortgages were – and this gave quasi-official sanction to the quotes of the enthusiastic financial advisers – oh and let’s not forget accountants and solicitors and banks and building societies who were also falling over themselves to earn the substantial commissions paid by the vendors of these terrible products – the full story is here – http://www.bbc.co.uk/news/business-20858236