Low start endowment mortgage |
Background |
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Capital sum of £50,000 |
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25 year endowment policy |
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Duration to date: 10 years |
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Endowment premium per month: starting at £35 in first year, increasing by 20% simple on each policy anniversary, reaching £70 after five years and then remaining at that level. |
Established facts: |
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Endowment surrender value: |
£8,200 |
Capital repaid under equivalent repayment mortgage: |
£9,700 |
Surrender value less capital repaid: |
(£1,500) |
Cost of converting from endowment mortgage to repayment mortgage: |
(£250) |
Total outgoings to date |
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Repayment mortgage (capital + interest + DTA life cover): |
£46,800 |
Endowment mortgage (endowment premium + interest): |
£45,640 |
Difference in outgoings (repayment minus endowment): |
£1,160 |
Of this difference in outgoings, £800 arose in the five year period when the complainant was paying a low endowment premium. |
Basis of compensation |
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In this example, the complainant has suffered loss because the surrender value of the endowment is less than the capital repaid but has gained from the lower total outgoings of the endowment mortgage. As in Example 3, in calculating redress the whole of the gain should be offset against the loss unless the complainant's particular circumstances are such that it would be unreasonable to do so. However, unlike Example 3, in a low start endowment mortgage the complainant may have chosen to pay a lower than usual premium in the early years (this would need to be established on the facts of the case). Where it has been established that the complainant chose to make lower payments, even if it is unreasonable to take account of the whole of the gain from total outgoings, the gain from paying a lower premium during the low start period is normally taken into account. In such cases the redress is calculated as the capital loss plus the conversion cost minus the total amount by which repayment mortgage outgoings would have exceeded the actual low start endowment mortgage outgoings during the five year low start period. |
Redress if it is not unreasonable to take account of the whole of the gain from lower outgoings |
Loss from surrender value less capital repaid: |
(£1,500) |
Gain from total lower outgoings under endowment mortgage: |
£1,160 |
Cost of converting to repayment mortgage: |
(£250) |
Net loss: |
(£590) |
Therefore total redress is: |
£590 |
Redress if it is unreasonable to take account of gain from lower outgoings |
Loss from surrender value less capital repaid: |
(£1,500) |
Gain from total lower outgoings during low start period of endowment mortgage: |
£800 |
Cost of converting to repayment mortgage: |
(£250) |
Net loss taken into account: |
(£950) |
Therefore total redress is: |
£950 |