Endowment
mortgages were extremely popular in the 80s and 90s and it's
not hard to see why.
They were promoted as a cheap and reliable way to clear your debt.
Although they're still around, they aren't seen that
way now.
Endowment mortgages combine an interest-only
home loan with a stock market investment an endowment policy which
also includes life
insurance.
This means there's no need to pay for a separate life policy to
repay your debt in case the worst happens.
But this was just a small part of the allure when these mortgages
were in their heyday.
The idea was that the endowment policy, which was
invested in company shares through the stock market, would make
enough money to pay off the capital
part (the amount originally borrowed) of the mortgage debt
with thousands of pounds to spare.
The salesmen and women who promoted these policies made commission
on every one they sold, so it's not surprising they talked them
up to the skies.
And, to be fair, in those days most of them believed they were
an excellent product.
Misplaced optimism
What they hadn't allowed for was the unpredictability of the stock
market.
Economic, political or psychological factors can send share values
plummeting at any time.
And this is basically what happened.
Share price growth faltered and values started to
fall, taking the value of the linked endowments with them.
Although share prices generally have been on an upward trend for
the past few years, it's unlikely we will ever see the growth
needed to get these policies back on track.
(And it wouldn't necessarily be a good thing if we did, as it
is now recognised that growth of this level tends to be unsustainable
over the long term.)
As a result, most policies will never be worth anything
like what was hoped.
That means the majority of people who took out an endowment mortgage
face a shortfall of several thousands pounds, which they will
have to make up by other means.
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