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Endowment claims hit record

70,000 new complaints as more people seek compensation for mortgage shortfalls

Patrick Collinson
Thursday June 30, 2005
The Guardian

The number of people seeking compensation for mortgage endowment shortfalls soared by more than a third last year to reach record levels.
The Financial Ombudsman Service said yesterday that in the year to April 2005 it received 70,000 new complaints involving endowments - equal to 1,300 a week - compared with just 300 a week three years ago.

It ordered endowment companies to pay out about 200m in compensation, after finding evidence of mis-selling in around half the cases brought to the service. The typical level of compensation was 5,500.

It hired nearly 200 extra adjudicators to handle complaints, taking the total to 560, and saw costs jump to 45.8m from 36.5m the year before.
Much of the surge in complaints is coming from the mushrooming claims-handling industry, with as many as 100 "no-win, no-fee" firms touting for business.

The ombudsman, Walter Merricks, made clear his disdain for no-win, no-fee firms in yesterday's annual report. "The outcome in these cases appears no different from the outcome in cases that consumers bring direct themselves," he said.

Mr Merricks is concerned that the claims handlers are grabbing as much as 50% of any compensation award. "We make clear to consumers that no one should need the help of a third-party company to bring a complaint to the ombudsman."

Claims handlers reacted angrily to the ombudsman's swipe. Ian Allison, claims director at Brunel Franklin, said: "We are not ambulance chasers and we do not put forward spurious claims. We make a huge difference, particularly where people are baffled by their compensation offer. In one case of a Liverpool woman, we rejected a 2,900 offer from Standard Life and obtained 29,000 instead."

The ombudsman warned that the level of complaints could increase further during the coming year as people received re-projection letters, many of which were likely to warn them that their policy would not be big enough to pay off their home loan when it matured.

"Most of these letters will warn of likely mortgage shortfalls and many will give, for the first time, an explicit deadline by which any complaint must have been lodged," said Mr Merricks.

"These letters could result in significant increases in the numbers of consumers contacting their endowment provider and in sudden bulges in complaint volumes."

Despite hiring hundreds more adjudicators, delays in handling complaints are still rife. One in five complaints take more than nine months to resolve, and one in 10 take longer than a year.

"The very large volumes of endowment complaints mean that we have not been able to deal with these cases as quickly as we would like," said Mr Merricks.

Most complaints do not even reach the ombudsman, as they are settled directly by the firms concerned. Only those that have reached "deadlock" go in front of the ombudsman.

Curiously, the ombudsman service found that those who come to it seeking compensation are most likely to be Daily Mail or Mail on Sunday readers, papers that have campaigned against the evils of Britain's "compensation culture".

A spokesman for the ombudsman said the figures are puzzling, as Sun readers are more numerous but made up just one in 20 compensation claimants.

One reason suggested is that Mail readers are more likely to be ex-council, first-generation homeowners, perhaps more easily swayed into buying endowments and with few parental role models to turn to for financial advice.

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