Marginally off topic, but related to my earlier post about Abbey, there is a rumour doing the rounds of the City that Abbey National may be subject to a takeover bid by Spain's Santander bank.

This morning Abbey's shares rose 5%.

Maybe here is a possible solution to those of us facing shortfalls on our endowment mortgage policies.

Hedge the expected loss, by buying shares in banks and insurance companies (the same organisations that mis-sold the endowment policies) that may be subject to takeover bids.

Note, I am speaking with my tongue "firmly in my cheek". This would be a high risk strategy, which would quite likely lose even more money than the shortfalls predicted on the endowment policies.

Remember, when making an money related decision, always take the advice of a suitably qualified independent financial expert and lawyer.

I understand that Abbey is trying to avoid responsibility for mis-selling endowment policies pre April 1988.

Their rationale being that before the Financial Services Act took effect in April 1988, there were no rules covering endowments.

However, there is a voluntary agreement whereby banks are supposed to take responsibility for investment products they sold before April 1988.

Abbey happily argues the point that it was under no obligation to inform borrowers about any risks, it was in their view the role of the endowment company to explain the risks.

How very helpful of them!

Needless to say, if it wins this argument, it will not have to pay compensation for endowment policies mis-sold before April 1988.

It certainly needs all the financial help it can get, as over the last two years it has lost over £1.5BN.

It may be that the Financial Ombudsman Service takes a different view.

In my view, do not "lay down and die" just because your IFA has fobbed you off with the "Abbey excuse"; take it to the Ombudsman.

I understand that the Financial Services Authority is under pressure to reduce the mid range projection rate of 6% per year, which it has been using for the last 5 years.

Leading insurers are worried that the rate is unrealistic, and have themselves reduced their projection rates to around 5.5%.

The FSA is reviewing the rates and how they are calculated, a reduction in the rate will give rise to a whole new flurry of red letters warning of shortfalls.

This of course is an entirley academic exercise, the only sure measure is the day the endowment policy ends; and the difference between the endowment fund and mortgage debt is calculated.

I understand that Allied Dunbar has upheld a misselling complaint against an IFA, despite overwhelming evidence that the risks inherent in the policy were made clear at the time of sale.

The client alleged that he understood his Maximum Investment Plan (MIP) to be a savings product, and was unaware of the possibility of any shortfall. He claimed that he was not told that the policy was linked to the stock market.

However, the personal illustration issued at the outset, warned that an annual growth rate of 5% would cause the policy to fall short of its required maturity value by £5K.

Despite this, the life office upheld the complaint and refunded the investor’s contributions.

Zurich, which owns Allied Dunbar, noted that that the complaint was upheld on a technicality.

Allied Dunbar was fined £725K by the FSA for not dealing with misselling claims quickly enough.

This decision should, in my view, have repercussions for those of us seeking compensation for endowment mis-selling.

Reuters report that complaints about endowment policies will hit 2004 profits at Countrywide Assured's life assurance unit. This unit will be demerged, and will start trading as Chesnara on the 25th of May.

The firm is expected to take a £4.8M provision to cover against complaints for endowment policy mis-selling.

Countrywide Assured note that "..the increased level of endowment complaints experienced during January and February 2004 has persisted...".

Welcome to the Wild West

I received an interesting letter today, from the complaints company handling my claim for compensation the mis-selling of my pre 1988 endowment mortgage.

It seems that in the last few days another company has been writing to some of their clients. This “interloper” claims that the complaint cases have been transferred to them.

In other words, the “interloper” is trying to poach the business of the company that is meant to be handling the endowment complaint.

My complaints company points out that it has not transferred any cases to another company, and has not agreed that this company may contact its clients.

Their letter then goes on to ask me if I have been contacted, and to forward any details that I may have, I have not.

I rang to ask them how it was that this “interloper” had managed to get hold of their clients’ details. I was told that they do not yet know, they are conducting an investigation to find out.

This rather sad, and disturbing, tale shows how unpleasant and poorly regulated the whole endowment industry has become. In my view it is more akin to the Wild West, rather than a well regulated financial system in the 21st century.

Not only are 6 million endowment policy holders facing an expected £40BN shortfall on their mis-sold policies, they are now subject to dirty tricks by unscrupulous sharks seeking to bleed them dry of even more of their hard pressed funds.

In my view, the FSA and insurance companies need to get their act together and sort this disgraceful situation out once and for all.

Citizens' Advice are warning that the UK faces a debt crisis, which threatens to ruin the lives of many.

Their research shows personal debt problems threaten to overwhelm large numbers of people; this was the message at a debt conference organised by the Conservatives.

Citizens Advice has seen a 44% increase in debt problems in the past six years, and its 2,800 offices deal with over one million new debt enquiries a year.

The expected £40BN shortfall on mis-sold endowment polices will hardly help this situation.

Citywire report that house prices are continuing to rise. The gap between north and south is narrowing.

The Halifax notes that house price inflation in London has fallen from 19% in the first quarter of 2003 to 9% for the same period this year, and from 26% to 7% in the South East on the same basis.

House prices continue to rise most rapidly in northern England and Wales. The biggest price increases over the last year have been in the north (36%), Wales(36%), the North West (30%) and Yorkshire and the Humber (28%).

Rightmove, the property website, expects house price inflation to hit 20% this year.

Rightmove note that the price of an average home was £184,582 in early April, £13,674 more than in January; and 50% more than at the start of 2002. Prices rose 2.8% in March, taking annual price inflation to 14.4% from 11.9% in February.

They are hopeful that there will not be a crash, some good news for endowment policy holders then!

Reuters report today that the Council of Mortgage Lenders have stated that bankruptcies pose a growing threat to the housing boom.

Bankruptices are at their highest level for 11 years.

It is likely that interest rates will rise this year, causing people who have borrowed heavily increased hardship wrt paying their debts.

This in turn will threaten the housing market, which is already under threat from the estimated £40BN shortfall on endowment mortages.

I received a message on The Forum today from Ian, who was asking for advice about writing a letter of complaint.

Here is my response, which is pertinent to all seeking to complain:

"...Thanks for your message, I am sorry to hear of your potential loss.

You are not alone, there are 6 million of us facing a £40BN shortfall.

If you need a good quality proforma complaint letter then go to the part of the Consumers' Association website, which is helping consumers draft complaint letters, it can be found at endowment action.

I would note that the time for making complaints is running out, and that those of you who have not yet done so ought to do so very soon.

Remember that when making any financial decision, take the advice of a suitably qualifed independent financial adviser and lawyer..."

Reuters report today that mortgage equity withdrawal has hit a new record of £16BN in Q4 2003, the total for 2003 being £53BN.

This being approximately 8% of household disposable income.

The withdrawn equity is being used to finance consumer spending. It is expected to top £60BN in 2004.

I would caution against this practice; borrowing long to spend short is very unwise, and is unlikely to be sustainable.

As and when the endowment mis-selling "chickens come home to roost", there is going to be a shortfall of at least £40BN which someone is going to have to finance.

Those that have overloaded their finances with extra long term debt, in order to satisfy short term whims, may find the future very bleak indeed.