Lower endowment bonuses leave mortgagers unredeemed

Homeowners expecting to pay off their mortgages this year, when their endowment policies mature, could be in for a shock.

Some policies that were taken out in the 1980s and 1990s will see their returns continue to fall in 2008, as leading UK’s insurance companies warn of reduced annual bonuses.

Annual bonuses take into account past investment performance, previous bonus announcements and a company’s financial strength.

With-profit endowment policyholders with Scottish Widows, Friends Provident and Norwich Union could find themselves with insufficient funds to redeem their home loans.

For example, a male who took out a 25-year Scottish Widows endowment policy aged 30, paying £50 per month, can expect to see his payout reduced by £442 from £38,578 in 2007 to £38,136 in 2008.

A Friends Provident policy, on the same terms, could see a payout of £37,540 in 2007 reduced by £1,025, to £36,425 in 2008.

A Norwich Union endowment policy on the same terms will pay out £39,357 in 2008 compared to £42,133 in 2007.

For Scottish Life policyholders, the difference is 8.5%, with a 2008 payout of £34,196 compared to £37,132 in 2007.

However, Standard Life has actually increased returns on with-profit mortgage endowments paying £37,763 in 2008 compared to £36,950 in 2007 on a policy on the same terms.

Prudential and Legal and General have also announced increases over 2007.

Discuss this in the Finance Markets forums

Story link: Lower endowment bonuses leave mortgagers unredeemed