Brits like endowment mortgage claims firms
Wednesday, 06 December 2006 12:00
While experts label endowment mortgage claims companies expensive and unnecessary, new research shows consumers like using them.
A new study by the Financial Services Consumer Panel reveals mortgage holders value the time saved using such firms as well as the help they offer on what is perceived to be a complicated process.
And despite charging 20 to 30 per cent of the settlement as a fee, two claimants in three think they are getting value for money.
"Some consumers seem quite prepared to pay part of their compensation to a claims firm, especially when the alternative is to receive no compensation at all, because they do not have the time or the confidence to pursue a claim themselves," said John Howard, chairman of the Financial Services Consumer Panel.
But there are real questions about how much time and effort these firms actually save.
People are entitled to claim compensation from their endowment mortgage provider if they were mis-sold policies and could lose out financially because of this.
And applying for compensation for an under-performing endowment mortgage can often be as simple as calling the policy provider or writing a single letter.
As such, being charged up to 30 per cent of the settlement seems excessive, and some mortgage providers refuse to pay money to them.
Additionally, the consumer panel found evidence some endowment claims firms only act for individuals where there is a good chance of success and companies simply stop communicating with clients if they feel the claim is not likely to be successful.
"It is not clear that the claim firms save consumers that much time and there was dissatisfaction with some aspects of the service provided by some firms - not giving details about the fees up front, and poor service in telling clients when the claim was not successful," said Mr Howard.
"This needs to be considered as the government starts to regulate this arena through the Department of Constitutional Affairs."
In the 1980s and early 1990s millions of consumers were sold endowment mortgages, which they were told would mature and pay off their mortgages as well as probably delivering a surplus.
But the under-performance of the stock market since then means many people are left with a shortfall between the value of the loan and the value of the endowment policy.
If this risk was not fully explained (as was the case in up to 60 per cent of cases at one point) consumers are entitled to compensation from the institution that sold them the policy.
Almost two claims in five are upheld - with the average compensation payment over £2,000.
There is also concern customers could be missing out once compensation is paid - with large numbers simply surrendering their endowment policy, rather than selling it on the open market.
This decision could cost homeowners thousands of pounds (full story).
Comments
Newsletter sign up