Crash in endowment payments hits thousands of homeowners

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Tens of thousands of homeowners will this year face losing their homes, thanks to a crash in payouts on mortgage endowment policies.

Over the last 25 years, the average return has plummeted by 78%. As a result, at least 70,000 people will see a huge shortfall when their policies mature this year, a Money Mail investigation has concluded.

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Endowment policies, which were extremely popular in the 1980s, are monthly savings schemes which are used to pay an interest-only mortgage, with a lump sum at the end to pay off the capital.

Customers were often led to expect a payout that would actually be bigger than required to pay off the mortgage, leaving them with an extra lump sum.

However, things have turned out very differently.

In 1992, says the Mail, a typical 25-year, £50-a-month Legal & General plan generated £101,000. By 2007, that payout had fallen to £44,602, leaving 86% of customers with too little to clear their mortgages.

Over the past five years payouts have collapsed still further, and today, customers get £26,408 - around a quarter of what was advertised 25 years ago.

If you're facing an endowment shortfall, you shouldn't bury your head in the sand. The most obvious way to deal with the problem, if you can, is to convert some or all of your mortgage to a repayment mortgage. This will increase your monthly repayments, but should ensure that you can pay your mortgage off at the end of the term.

You may also be able to overpay every month, or set up a separate savings scheme.

Alternatively, if you're young enough, you may be able to extend the term of your mortgage to buy yourself more time - although the Money Advice Service cautions that this should really be a last resort.

In some cases, it may be possible to argue that you were mis-sold the policy, in which case you should start by contacting the company that sold it to you.

"However, you can only complain if the advice you received was incorrect or misleading," the Money Advice Service warns.

"You don't have grounds for complaint simply because the endowment has not performed as well as you would have hoped."

There's more information here.

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Figures from charity Age UK show that 29% of those over 60 feel uncertain or negative about their current financial situation - with millions facing poverty and hardship.

Even though saving for retirement is not much fun, the message is therefore that having to rely on dwindling state benefits in retirement is even less so.

To avoid ending up in this situation, adviser Hargreaves Lansdown recommends saving a proportion of your salary equal to half your age at the time of starting a pension.

In other words, if you are 30 when you start a pension, you should put in 15% throughout your working life. If you start at 24, saving 12% of your salary a year should produce a similar return.

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