The BBC has published commentary on Financial Conduct Authority (FCA) commissioned research into potential shortfalls faced by homeowners as their interest only mortgages are scheduled to mature over the coming years.
Prudent homeowners taking out such mortgages will have made provision for repayment of the capital at maturity. Typically, many will have taken out with-profit endowment policies in conjunction with their mortgage, with the maturity proceeds targeted to repay the mortgage capital. These were taken out with life companies such as Prudential, Legal & General, Clerical Medical and Scottish Widows.
However, many of the original projections provided to endowment holders were based upon what have turned out to be overly optimistic growth assumptions. As such, many homeowners will face a shortfall on the capital repayment of their mortgage, unless they have successfully put in place a suitable contingency.
Dirk Strontschak, a Fund Manager at SL Investment Management of which Surrenda-Link is the Endowment trading arm said, “At the time that these endowment policies were created, experienced capital market growth rates were strong. Life Offices had been consistently achieving double digit annualised returns within their with-profit funds, and this translated to equivalent double digit payouts on maturing policies. However, in more recent years we have experienced a lower inflationary and interest rate environment, and whilst relative with-profit returns have continued to fare well against comparable risk free rates, this has translated to a reduction in payouts against original life company projections.
During the past few years, Surrenda-link believes that many policy holders will naturally have been oblivious to the evolving circumstances. Dirk Strontschak continued, “General acknowledgement of the developing problem has perhaps been low amongst policy holders, with many unaware of the need to redirect savings made through reduced mortgage interest payments into alternative savings and investment products; thus addressing the possible shortfall.”
For policy holders looking to dispose of their endowment, Surrenda-link has buyers who can pay more than surrender value offered by the life company, helping to reduce any potential future shortfall. For more information, please call us on 0800 919 021.