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Mortgage glossary

Endowment mortgages

Endowment mortgages use investment funds to pay off the value of the loan - rather than the mortgage-holder paying off the debt directly.

Many institutions used to claim that stock market growth meant that when the endowment policy matured the investment would have grown to the extent that not only would the original debt be paid off, but that there would also be a lump sum left over that the homeowner could use as they saw fit.

However, hefty falls in the stock market at the start of the century meant that rather than paying-off mortgages with money to spare, most endowment policies failed to return enough money to cover the original loan.

When the policy was sold, if it was not made suitably clear to the policy-holder that the endowment policy might not fully cover the cost of the loan (and at one point in the 1980s between 50 and 60 per cent of endowment mortgages were sold without this point being made, according to the Treasury select committee) borrowers are entitled to compensation.

This will 'make up the difference' between the value of their endowment and where they would be if they had taken out a normal repayment mortgage instead.

Consumer organisation Which? has produced a guide to complaining, if consumers think they are due compensation. See www.which.co.uk/endowmentaction/


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