Mortgage endowment complaint


E

eve

Can anyone advise on this please;

I have been offered £15,698.44 (surrender value being £10,476.15) for
an endowment policy from Friends Provident which I complained I was
mis-sold. The policy was to cover a mortgage of £34,654 taken out in
August 1987.

This will leave me with a mortgage of £18,955.55, which will be
converted to repayment to pay off the mortgage in August 2013. I have
calculated that this will give me a monthly repayment figure of
£216.75. Interest only is £108, I will no longer need to pay the
endowment premium of 49, but will need life cover at about £6. This
will mean my repayment will increase by £65.75. A total of £6,838
over the remaining period.

The figure of £15,698.44 is what Friends Provident say I would have
paid off the mortgage so far. What I am finding difficult to
understand is if they are putting me in a position I would have been
in had I taken out a repayment mortgage why do I find myself having to
find £65 per month extra now.

I am having trouble getting someone to check the figures for me. I
have contacted several IFAs none of which can offer help with the
calculations used as they say it requires specialist software. The
sum Friends Provident say we have paid over the years is 52415.15 I
calculate that we have paid about £3,000 more than this over the
years, but I'm not sure this would make any difference to the figure
offered.

I would like to know if this offer is reasonable. I do not want to
complain to the ombudsman and find myself with a worse offer.

THANKS
 
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G

GSV Three Minds in a Can

from the said:
Can anyone advise on this please;

I have been offered £15,698.44 (surrender value being £10,476.15) for
an endowment policy from Friends Provident which I complained I was
mis-sold. The policy was to cover a mortgage of £34,654 taken out in
August 1987.

This will leave me with a mortgage of £18,955.55, which will be
converted to repayment to pay off the mortgage in August 2013. I have
calculated that this will give me a monthly repayment figure of
£216.75. Interest only is £108, I will no longer need to pay the
endowment premium of 49, but will need life cover at about £6. This
will mean my repayment will increase by £65.75. A total of £6,838
over the remaining period.

The figure of £15,698.44 is what Friends Provident say I would have
paid off the mortgage so far. What I am finding difficult to
understand is if they are putting me in a position I would have been
in had I taken out a repayment mortgage why do I find myself having to
find £65 per month extra now.
Because, on a repayment basis, you should have been paying more since
day1 in order to clear the balance by the end of the period?? Why don't
you ask FP to 'show you their workings', that would be easier to check
than trying to pluck numbers out of thin air.

A cursory glance at the numbers -- looks like you have been paying
£43/month for 'investment' (taking off the £6 which you say is what the
life insurance element would cost). That's ~£500/year for 16.5 years,
i.e. about £8.3k .. seems that getting back £15.6k is not a bad rate of
return (but your opinion might differ).
 
R

Ronald Raygun

eve said:
I have been offered £15,698.44 (surrender value being £10,476.15) for
an endowment policy from Friends Provident which I complained I was
mis-sold. The policy was to cover a mortgage of £34,654 taken out in
August 1987.

This will leave me with a mortgage of £18,955.55, which will be
converted to repayment to pay off the mortgage in August 2013.
Was the endowment originally scheduled to mature in 2013? That seems
to be a 26 year term, which is a little unusual. Or did you elect
to go for a 10-year instead of 9-year repayment last year because the
monthly amount payable on the latter would have been too uncomfortable?
I have
calculated that this will give me a monthly repayment figure of
£216.75. Interest only is £108,
£108 for £18956? That's over 6.8%! Can't you do better than that?
The figure of £15,698.44 is what Friends Provident say I would have
paid off the mortgage so far.
A bit under half for 15 of 25 (or 16 of 26) years seems reasonable
enough, subject to what interest rates they assume would have been
charged over the period.
What I am finding difficult to
understand is if they are putting me in a position I would have been
in had I taken out a repayment mortgage why do I find myself having to
find £65 per month extra now.
Ah, that's easy. It's because short term repayments cost more
(relative to interest-only) than long term repayments do, simply
because the repayment of the capital borrowed is spread over a
shorter time. If you pay interest only, your debt will remain
at £18956 forever. You still have to repay this sum over 120
months, which ought to cost you £158 per month on top of the
£108 interest. Except, of course, the compounding and saving
of interest due to a reducing balance mean you actually *only*
pay £217 instead of £266.

All other things being equal (notably the interest rate, but we
can't really tell because we don't have a record of what the rates
were when you took out the loan, and what ups and downs they've
been through since then) you should expect to be paying the same
per month now as you would have been paying per month with a
repayment from the outset. In other words, had the interest rate
been the same as now since the outset, you would have been paying
£217 a month for the full 300 month term for the full £34654.
I am having trouble getting someone to check the figures for me. I
have contacted several IFAs none of which can offer help with the
calculations used as they say it requires specialist software.
Specialist software? Poppycock! All it needs is a detailed record
of interest rates your lender(s) would have charged you.

Certainly, from the scanty information given, it doesn't look at
all unreasonable.
 
R

Ronald Raygun

GSV said:
A cursory glance at the numbers -- looks like you have been paying
£43/month for 'investment' (taking off the £6 which you say is what the
life insurance element would cost). That's ~£500/year for 16.5 years,
i.e. about £8.3k .. seems that getting back £15.6k is not a bad rate of
return (but your opinion might differ).
And so it damn well should. £43/month for 198 months is £8.5k right
enough, but only if you stuff it under the mattress. If you invest
it you expect rather more, and as it happens £15.6k is pretty well
spot on what you'd expect at monthly growth equivalent to 7%pa.
 
G

GSV Three Minds in a Can

from the said:
And so it damn well should. £43/month for 198 months is £8.5k right
enough, but only if you stuff it under the mattress. If you invest
it you expect rather more, and as it happens £15.6k is pretty well
spot on what you'd expect at monthly growth equivalent to 7%pa.
Which is what I said .. so why are you agreeing with me so violently?
(Actually it's more like 6%, but that's NET, and I don't think I've
managed that well on cash savings over the last 16.5 years).
 
R

Ronald Raygun

GSV said:
Which is what I said .. so why are you agreeing with me so violently?
Violent? Moi?

Actually I was disagreeing. You seemed to be saying that £15.6k was
pretty brilliant ("not bad" being an understatement) compared with the
mattress method, as if the mattress was somehow a contender for at least
half a brownie point. I just meant to point out it's merely mediocre.
(Actually it's more like 6%,
Doubting my arithmetic? OUTSIDE!!

<hangs up jacket, rolls up shirt sleeves>

Now look here. 7% annual growth => monthly factor f=1.005654.
(f^198-1)/(f-1) * £43 = £15619.

<biff> TAKE THAT!

Do the same with 6% and you only get £14271.

<thwap> Let that be a lesson to you.
 
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G

GSV Three Minds in a Can

from the said:
Violent? Moi?

Actually I was disagreeing. You seemed to be saying that £15.6k was
pretty brilliant ("not bad" being an understatement)
Nope, you leapt to an incorrect conclusion. 'Not a bad RoR' means just
what it says. Not bad. If I'd meant 'brilliant' I'd have said, let me
see, something like 'brilliant'.
compared with the
mattress method, as if the mattress was somehow a contender for at least
half a brownie point. I just meant to point out it's merely mediocre.


Doubting my arithmetic? OUTSIDE!!

<hangs up jacket, rolls up shirt sleeves>

Now look here. 7% annual growth => monthly factor f=1.005654.
(f^198-1)/(f-1) * £43 = £15619.

<biff> TAKE THAT!

Do the same with 6% and you only get £14271.

<thwap> Let that be a lesson to you.
You're missing half a year .. it's well past August 2003, so you need to
swap your 198 for something more like 204 or 205.
 
Y

yvonne

Was the endowment originally scheduled to mature in 2013? That seems
to be a 26 year term, which is a little unusual. Or did you elect
to go for a 10-year instead of 9-year repayment last year because the
monthly amount payable on the latter would have been too uncomfortable?
OOOps I meant to say 2012 which would be 15 years
£108 for £18956? That's over 6.8%! Can't you do better than that?
Sorry I did not explain myself very well, the £108 represents the interest
only on the whole mortgage of 34654, presuming I do not accept the offer. I
got the other figure from an online repayment calculator to work out the
repayment over the term left ie 8yrs 8 mths.
A bit under half for 15 of 25 (or 16 of 26) years seems reasonable
enough, subject to what interest rates they assume would have been
charged over the period.


Ah, that's easy. It's because short term repayments cost more
(relative to interest-only) than long term repayments do, simply
because the repayment of the capital borrowed is spread over a
shorter time. If you pay interest only, your debt will remain
at £18956 forever. You still have to repay this sum over 120
months, which ought to cost you £158 per month on top of the
£108 interest. Except, of course, the compounding and saving
of interest due to a reducing balance mean you actually *only*
pay £217 instead of £266.

All other things being equal (notably the interest rate, but we
can't really tell because we don't have a record of what the rates
were when you took out the loan, and what ups and downs they've
been through since then) you should expect to be paying the same
per month now as you would have been paying per month with a
repayment from the outset. In other words, had the interest rate
been the same as now since the outset, you would have been paying
£217 a month for the full 300 month term for the full £34654.


Specialist software? Poppycock! All it needs is a detailed record
of interest rates your lender(s) would have charged you.
I have spoken to 5 local IFAs none of whom could offer any help. I do have a
record of the interest rates paid over the term of the mortgage.
Certainly, from the scanty information given, it doesn't look at
all unreasonable.
Thanks for the advice.
 
R

Ronald Raygun

GSV said:
You're missing half a year .. it's well past August 2003, so you need to
swap your 198 for something more like 204 or 205.
You're missing your 12 times table. Mine has 198 right there, slap
bang next to 16.5. August 1987 plus 198 months equals February 2004.

You're a silly Billy. What are you?
 
Y

yvonne

yvonne said:
OOOps I meant to say 2012 which would be 15 years NO IT wouldn't it would be 25


Sorry I did not explain myself very well, the £108 represents the interest
only on the whole mortgage of 34654, presuming I do not accept the offer. I
got the other figure from an online repayment calculator to work out the
repayment over the term left ie 8yrs 8 mths.


I have spoken to 5 local IFAs none of whom could offer any help. I do have a
record of the interest rates paid over the term of the mortgage.

Thanks for the advice.
 
G

GSV Three Minds in a Can

from the said:
You're missing your 12 times table. Mine has 198 right there, slap
bang next to 16.5. August 1987 plus 198 months equals February 2004.
OK, I'll give you that one. That makes it even 'less bad' than I
originally thought .. 7%, tax free.
 
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R

Ronald Raygun

yvonne said:
OOOps I meant to say 2012 which would be 15 years
OK (and noted you mean 25).
Sorry I did not explain myself very well, the £108 represents the interest
only on the whole mortgage of 34654, presuming I do not accept the offer.
Can you clarify. The offer of £15698 is the surrender value £10476
plus a compensation payment of £5222. Is the offer conditional on
surrendering, or would they give you £5222 and let you keep the
endowment going? If that were an option, would you consider taking
it, or would you rather be rid of the endowment?
I got the other figure from an online repayment calculator to work out the
repayment over the term left ie 8yrs 8 mths.
Ah, 3.74% is more like it! But I'm disappointed, because when you use
an online repayment calculator, then to say "I have calculated" is
a bit like the truth being putty in your hands. :-(
I have spoken to 5 local IFAs none of whom could offer any help.
It's slightly labour intensive, and they can't be bothered, and
are probably too thick to handle the arithmetic involved, hence the
claim that "specialist software" is needed.
I do have
a record of the interest rates paid over the term of the mortgage.
If you post them, I'll do the calculation for you.
 
D

Distracted Dan

My position is similar insofar as the dates are almost identical. My
endowment matures in Sept 2012, but was taken out to repay a 50K
mortgage.

Legal and General have offered me £21823.26. £18,176.30 as surrender
and £3646.96 as "redress".

I dont know how FP works, but when questioned, L+G gave me a breakdown
of how they came to this figure, so I guess FP would probably do the
same if asked. Its probably in the FSA guidlines.

They basically took the repayment figures from Halifax over the
period, and amortized it, showing what my mortgage balance would now
be had I gone this route initially. This figure then comared to the
surrender value, and the balance is the "redress".

In a sad moment, I actually download the b of e base rates over this
period from the treasurey website, averaged it out over the same
period, and used the amortisation calculator at
http://ray.met.fsu.edu/~bret/amortize.html I came to a similar
figure.

My dilema is what to do now ? As its almost "bonus season" so Im
tempted to take the "redress" and keep the policy and surrender it
next month, when, hopefully, the surrender value will be alittle
higher. ???

I tried contacting a few endowment market companies, but no one is
prepeared to offer greater than the L+G surrender value for my policy.
Hmmmm. Maybe that fact alone tells me to take the money and run. :)

Anyone any thoughts on this ?
 
R

Rhoy the Bhoy

Ronald Raygun wrote:
[snip]
Specialist software? Poppycock! All it needs is a detailed record
of interest rates your lender(s) would have charged you. [snip]
What do you do with the rates and how ?

Clue: software can help.
 
R

Rhoy the Bhoy

eve wrote:
[snip]
I would like to know if this offer is reasonable. I do not want to
complain to the ombudsman and find myself with a worse offer.
That'll be the day: an insurer offering more than the O would force it
to
 
Y

yvonne

Ronald Raygun said:
OK (and noted you mean 25).
offer.

Can you clarify. The offer of £15698 is the surrender value £10476
plus a compensation payment of £5222. Is the offer conditional on
surrendering,
YES


Ah, 3.74% is more like it! But I'm disappointed, because when you use
an online repayment calculator, then to say "I have calculated" is
a bit like the truth being putty in your hands. :-(
I'm not that clever, I would not know where to begin to calculate the
repayment method on a mortgage. I can just about manage interest only, but
again I cheated & used an online calc to do that.
It's slightly labour intensive, and they can't be bothered, and
are probably too thick to handle the arithmetic involved, hence the
claim that "specialist software" is needed.


If you post them, I'll do the calculation for you.
Brilliant; as follows:

period int rate no of months
28/08/1987 11.25 4
31/12/1987 10.25 1
01/01/1988 10.25 4
01/05/1988 9.75 3
01/08/1988 11.50 2
01/10/1988 12.75 3
01/01/1989 12.75 0
09/01/1989 13.50 6
01/07/1989 13.80 3
16/10/1989 14.50 3
01/01/1990 14.50 1
23/02/1990 15.40 9
05/11/1990 14.50 2
01/01/1991 14.50 3
08/04/1991 13.75 1
17/05/1991 12.95 2
01/07/1991 12.45 1
12/08/1991 11.95 2
14/10/1991 11.50 3
01/01/1992 11.50 2
27/03/1992 10.95 4
01/07/1992 10.70 6
01/01/1993 9.25 6
01/07/1993
Total Interest to this point is £25,015.42 (this figure is taken from
statements; interest was calculated for the year and the same payments made
monthly, the figure was then adjusted for the next year to take account of
under/over payments due to interest rate changes.)

At this point we moved and increased the mortgage, the following are the
rates applied:
Fixed rate months
13/08/1993 7.77 57
31/05/1998

Fixed Rate
01/04/1998 6.20 65
18/09/2003

current rate
18/09/2003 3.74 3
31/12/2003

My total premiums to FP are £9,918 (their figure) this includes the life
cover element, they calculate I have paid £52,415.15 in premiums and
interest (I presume they have taken off MIRAS) over the term. They
calculate a repayment mortgage would have cost me £53,392.77. I have all of
this on a spreadsheet is it helps.

THANKS
 
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S

Stewart Devereux

With reference to the last post we were offered £11,000 redress and £2000
Compensation on a L+G £33,000 e.m.for 25 years taken out in Sept 1989. After
much advice our independent Advisor told us to take the compensation and
keep the policy. We did this-but only after a load of hassle from L+G who
said the offer was only for surrender. The FSO did help me on this and after
their intervention L+G changed their tune!
 
S

Steve Firth

eve said:
I have been offered £15,698.44 (surrender value being £10,476.15) for
an endowment policy from Friends Provident which I complained I was
mis-sold. The policy was to cover a mortgage of £34,654 taken out in
August 1987.
Have you considered hanging on to the endowment and taking a repayment
mortgage? It's a gamble as is every other decision but you're presumably
only eight years off the term of the endowment and it may pay off
reasonably well even if not 35K.

I have two endowments taken out years ago, the first was definitely not
a case of misselling it's done very nicely thank you and soon matures.
The second is a complete disaster and was both mis-sold and IMO sold
fraudulently. However after much umming and ahing and discussing it with
a reputable IFA that I paid to review my investments I decided to hang
onto both and changed to a repayment mortgage. Net results, term of
mortgage reduced, payments reduced (huge reduction in total payments)
and I now have two fairly reasonable looking investments to pay off in
just a couple of years time.
 
D

Distracted Dan

With reference to the last post we were offered £11,000 redress and £2000
Compensation on a L+G £33,000 e.m.for 25 years taken out in Sept 1989. After
much advice our independent Advisor told us to take the compensation and
keep the policy. We did this-but only after a load of hassle from L+G who
said the offer was only for surrender. The FSO did help me on this and after
their intervention L+G changed their tune!
Its in the FSA guidlines (AFAIK) to allow you to keep the endowment.
The fact sheet even mentions that you might get a better price on the
open market than the surrender value.

But back to my original question. Does anyone have any idea whether
my L+G endowment's surrender or market value should improve or
deteriorate after "bonus day" ??


Cheers,
Danny
 
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R

Ronald Raygun

Rhoy said:
Ronald Raygun wrote:
[snip]
Specialist software? Poppycock! All it needs is a detailed record
of interest rates your lender(s) would have charged you. [snip]
Clue: software can help.
Of course it can help. But there's nothing fancy or "specialist"
about it. Any half-decent programmer can throw something suitable
together in under an hour. After all, it's merely a matter of
automating something which can easily be done with a pad of paper
and a pocket calculator.
What do you do with the rates and how ?
First, you start with the amount borrowed, the term length, and
the initial interest rate.

You have to make some assumptions, such as that interest is applied
monthly, not annually, and you need to know whether interest is
charged at a twelfth of the annual rate each month, or whether it
varies depending on the number of days in the month, and how leap
days are handled.

Second, you calculate the appropriate monthly repayment. You need
to know how often this is re-done to account for rate changes,
typically it would be annually, or it could be done monthly.

Third, each month until the rate changes, you simply "run" the
account, i.e. charge interest at the prevailing rate on the sum
outstanding at the beginning of the month, and if the rate changes
mid-month, you'd split it on a number-of-days basis. Then you
subtract the payment and that becomes your starting balance for
the next month.

Then, depending on the re-calculation policy, you go back either
to step 3 or step 2.
 

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