MyNewDeal.com, one of the latest online mortgage brokers, is to launch into the market with a new service that will remove the risk for worried holders of endowment policies.
Ian Wilson, managing director of the site, explained: “We aim to differentiate ourselves from other sites through a range of solutions for our customers.
“The first solution will be a product package that will enable borrowers with endowments to remove the investment risk associated with their policy.”
The service, which is to be funded through an unnamed institution, will offer to purchase the policy and guarantee to meet an agreed price at maturity.
“It will help borrowers that are concerned that their endowment will not perform as well as expected. The borrower will agree with the company we partner to sell the endowment at its maturity date and receive a pre-determined sum,” Wilson said.
As a result, the buyer carries the risk on the endowment. Should the fund achieve more than the agreed sale price, the borrower loses out on the surplus, but if it underperforms they will still receive the agreed price.
While the buyer will guarantee to meet the agreed purchase price, it will not necessarily guarantee that it will repay the mortgage loan.
“The price we can guarantee the policy will be worth at maturity will depend on the fund’s performance to date,” said Wilson.
The doubt over whether an endowment will reach its target is a real concern for many, and risk removal may be an attractive alternative to cashing the policy in.
However, Robert Guy, technical director at John Charcol, said that a guarantee is not always necessary.
He said: “If a policy is already on target then a guarantee is not needed and there is no point in giving up the potential of the upside.”
According to traded endowment company AAP, £7.9bn of endowment policies were surrendered in 1998, a figure that is expected to rise next year.
Richard Edmonds, IFA at Thames Mortgage and Insurance Consultants said: “People that buy endowments do so to make a profit. People cash in policies for all the wrong reasons – it should only be a last resort, unless it has achieved poor performance.”
