By Rachel Williams
Around 40% of endowments may not be on target to pay off a policyholder’s mortgage, according to research from the ABI.
An informal survey among ABI members into projection letters sent out to endowment holders has revealed that 30% were ‘amber’ which means that the life office cannot be sure whether the policy’s target will be reached, and 10% were ‘red’, meaning that clients are advised that their endowment will not reach its target unless premiums are increased.
Around 58% of letters were ‘green’, which means that the endowments will meet their target to pay off the mortgage. The FSA had originally estimated that 60% of letters would be red or amber. Standard Life’s estimates are more in line with the FSA’s predictions – nearly half of its policyholders are expected to be sent a red or amber letter.
Siobhan Williams, press officer at Standard Life, said: “Out of our 1.2 million policyholders we are estimating that 530,000 will receive amber letters. 11,000 will receive red letters and the remainder will get green.”
The mail-out is yet to be completed but Williams said that newer policyholders are more likely to receive red or amber letters.
“Older policyholders are in a better position as their policies have had more years at a higher growth rate. This will balance out the lower growth rates we are expecting in the future,” she said.
Many Scottish Widows’ policyholders are also facing uncertainty about whether their endowment policy will be able to pay off their mortgage at current contribution rates. The company has estimated that while only 2% will get red letters, 65% will get amber letters. The remaining 33% will be sent green letters and will not need to take any action.
While the ABI figures look better than the FSA’s estimates, Suzanne Moore, press officer at the ABI, said the figures should be treated with caution as life offices are still writing to policyholders.
Moore said: “This could all change as only 25% of letters have been sent out.”
As a result, the FSA is sticking to its original forecasts. Louise Buckley, spokesperson at the FSA, said: “We are still anticipating that 60% of letters will be red or amber. They are currently only at 40% because mailings will continue until June.
“Many companies will be mailing to older policyholders first because, if action needs to be taken, it needs to be taken as soon as possible. But with differences in inflation and in investment returns, the longer-standing policies are likely to have less problems.”
l Scottish Life has joined forces with Mortgage Brain to offer 14,000 IFAs access to its mortgage endowment, Profitbuilder, via Mortgage Brain’s sourcing software. Using the software, brokers IFAs can source the most suitable product for their client, submit applications electronically, print off ‘reason why’ documentation, all in compliance with the Mortgage Code.
Currently, only three endowment providers feature on Mortgage Brain’s sourcing system, Mortgage Broker. Commenting on the announcement, Alasdair Buchanan, head of communications at Scottish Life, said: “The information available through Mortgage Broker software enables intermediaries to offer clients a much better service – more quickly, more accurately and more cost-effectively – while also complying with the Mortgage Code.”