Endowment policies and shortfalls

If you have an interest-only mortgage, you might have taken out an endowment policy with the hope that it would repay the capital you owe on the mortgage at the end of the mortgage term.

Will my endowment pay off my mortgage?

The success of any endowment policy is linked to the stock market, and will vary from year to year. There are risks involved in any investment that is linked to fluctuations in the financial markets in this way.

Many endowment policies that were taken out when interest rates were high (for example, between 10% and 12%) were issued on the assumption that it was reasonable to expect them to earn between 7% and 9% each year. However, when interest rates fall (for example to 5% or 6%), there is an increased risk the policy will not earn as much as was predicted.

Many borrowers who took out endowment policies in the 1980s or 1990s to repay their interest-only mortgage are finding that their endowment will not cover the full amount that they borrowed.

Speak to your lender as soon as possible if you think this applies to you. You might find that you are left with a large shortfall at the end of your mortgage term.

What can I do if i have an endowment shortfall?

If you have been told that your endowment policy may not cover the outstanding capital at the end of your mortgage you should get urgent advice. Speak to a Shelter Cymru debt adviser or contact your lender to discuss your options.

You may be able to make a complaint against the person or company who sold you the endowment policy and in some cases you might be able to get compensation.

If this isn’t successful, you can take steps to ensure your mortgage will be paid off. See our page on catching up with your endowment shortfall for a range of options.

It is important to check out all your options and get independent financial advice before you make any decisions.

We are sorry that we cannot provide this information in Welsh, however if you would like to speak to an adviser in Welsh please contact 08000 495 495.

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This page was last updated on: December 3, 2020

Shelter Cymru acknowledges the support of Shelter in allowing us to adapt their content. The information contained on this site is updated and maintained by Shelter Cymru and only gives general guidance on the law in Wales. It should not be regarded or relied upon as a complete or authoritative statement of the law.