The Endowment Mortgage Fiasco Trivia Quiz

Answer: "The Iron Lady", Margaret Thatcher

Margaret Thatcher abolished double tax relief in 1984, but by this time, as many as 11,000,000 had taken out these loans. With the abolition of double tax relief, one could only receive tax relief on the interest on the loan. With a strong stockmarket and a high interest rate, these mortgages could easily pay off the original loan and leave the consumer with a disposable lump sum at the end of their mortgage. By paying into endowment schemes, the borrowers' premiums were invested in the stock market, which provided good returns.

This was until the big stock market crash.

Answer: False

It is a phrase used particularly in the British Isles to refer to the policy, and is most frequently used by the lenders of the mortgage, and the policyholders. People in the United Kingdom will have also heard this phrase over and over again, on adverts claiming that they wish to help you with your "mis-sold policy".

Answer: You pay into one or more endowment policies, which then pays off the capital you borrowed.

By paying into these policies, the rest of the borrowed capital would be paid off by the endowment scheme. You had to pay the interest yourself, though. The growth earned on endowment policies at the time was often high, and so the money to pay off the mortgage was easily accumulated by the policies.

Answer: An agreement between you and your life insurance company

These agreements meant that money paid into the endowment schemes would be used on the stock market in order to gain money with which to pay off the capital borrowed. To take out the mortgage, a deal had to be struck between the borrower and the lender. No agreement had to be made between the life insurance companies and the borrower, as these schemes were not dependent on the borrower living long enough to pay them off.

Answer: Consumers could pay off the mortgage and then have a cash surplus left for themselves later.

Up until 1984, endowment mortgages qualified for tax relief on premiums using the LARP (Life assurance premium relief) clause. MIRAS (Mortgage interest relief at source) also meant that the longer it took to pay off the mortgage, the lower the tax would be on the money paid.

This meant that large, long-term mortgages were advantageous. These were rarely discussed as incentives by the media or the lenders, however, and so this was usually a hidden incentive. Many people were also taking out these mortgages to buy their local authority (council) houses, an option that had not been available before.

Answer: The growth rate of the endowment policies fell dramatically.

The growth rate on endowment policies fell dramatically. This meant that the endowment policies were not making enough money to pay off the mortgage. These problems were felt across the board, as pensions and most other personal insurance schemes ran into unforeseen problems because of stock market crash.

Answer: Yes

As many as 6,700,000 people have received 'red' or 'orange' letters, informing them that their endowment mortgages are facing severe shortfalls. This is 61% of the original endowment mortgages taken out. Even though insurance companies are quick to point out that, with the decrease in interest rate, you will be paying back less than you would have had to in the 1980s, the endowment policies are still not generating enough money to pay off the capital borrowed.

Answer: The borrower

Before the stock market crash of the 1990s, the main risk lay with the lender, as the capital accumulated through endowment schemes was what paid the lenders. When the market crashed, that all changed. As endowment policies were making little money on the stock market, it became more and more unlikely that the full capital could be paid back by the borrower, and so shortfalls became likely.

The endowment scheme managers felt no impact from these happenings, as they were dealing with other people's money, not their own.

Answer: All of these factors.

Many people felt that endowment mortgages were the only way to go, and so many people for whom it was highly unsuitable wandered blindly into these schemes (and were not advised otherwise by their lenders.) Many took out endowment mortgages to buy their council houses, as in the early 80s, the option was given to those who were previously tenants in these houses. You may not make a complaint if, at the time, the scheme was suitable for you and you are just unhappy with the way the scheme is going. Under those circumstances, you were not mis-sold your mortgage.

Answer: Yorkshire Building Society

Since the problems with endowment mortgages came to light, many companies have found a niche in helping people claim compensation from their mis-sold policies. One has to be careful, however, as many of these companies may not be acting in your best interest. Going to your bank and finding the most suitable way to claim is always the best idea in these situations.

So, were you mis-sold your endowment mortgage?