Repossession increases 'will up selling on endowment policy'

Concerns about the property market and an increase in repossessions could increase the number of people aiming to sell or surrender their endowment policies.

Figures from this month's Money Management magazine show poor returns on with-profits endowment policies in 2007 - with 59 per cent of policyholders receiving a red letter informing them of a shortfall.

Average policy growth is now at 6.8 per cent – below the necessary eight per cent level to meet the full mortgage repayment cost.

"This latest survey from Money Management is another devastating round in the endowment jungle challenge. In addition the increase in repossessions shown by the latest CML figures will fuel concern further," said Dan Farrow, chief executive of TIS Group, parent company of endowment policy market maker aap.

"Whilst recent booming property prices had left most homeowners feeling financially secure and subsequently unconcerned about meeting their mortgage repayment costs, widespread fears about the property market is forcing many to reconsider their finances."

Figures form the Council of Mortgage Lenders show a 17.6 per cent increase in repossessions over the first half of 2007 – and as higher interest rates start to bite, along with higher costs of living and slow wage growth, higher levels of repossessions can be predicted.

Mr Farrow went on to predict a rise in the number of people selling endowment policies to pay off debts – as poor performing with-profits endowment policies, concern about the property market and increasing debt and repossessions combine.

Currently the biggest reason for policyholders to sell an endowment is divorce.

There are currently some ten million mortgage endowment policies. However around four-fifths of endowment policies are not expected to pay off the full mortgage they are meant to cover, according to figures from the Association of British Insurers (ABI).