Interest-only mortgage shortfall: could your home be at risk?

I took out a repayment mortgage at around the same time my sister took out an endowment mortgage. It was spelt out clearly that there was no guarantee that the endowment would pay off the mortgage and provide a bid pot of money at the end of the term but that was the estimate based on past returns. I decided not to take a gamble but my sister liked the idea of a lump sum at the end of the mortgage. Both our mortgages ended a few years ago, hers with a £25k shortfall. She did not claim that the mortgage was miss sold as it was explained to her as it was to me that there was no guarantee of paying off the mortgage or receiving a bonus. Therefore, there is no just cause for a claim.

We are all paying for the financial institutions reimbursing PPI customers and I hope that we do not have the same problem with mortgages. It is time people took responsibility for their actions. Mortgages are the biggest financial transaction they are ever going to undertake and they must do so with caution.

I think it’s going a bit far to suggest, as Alan S does, that people were perhaps irresponsible to take out interest-only mortgages. I expect most mortgagors took a balanced decision with the benefit of advice [although there was no doubt some undue pressure in a number of cases]. The original ‘endowment’ mortgages linked to a life assurance policy, and the ‘low-cost endowment’ type that included some capital repayment, were predicated on the likelihood that [a] the mortgagors’ financial position would improve over the term while repayments more-or-less flatlined enabling them to make additional capital repayments, [b] the life assurance policy would out-perform the forecast, and [c] ultimately the value of the property would increase such that there was no risk of a capital shortfall. Eventually – under pressure from the rising price of houses, ever more favourable earnings multipliers, and the demands of the buy-to-let sector – these types of mortgage gave way to the high loan-to-value and interest-only loans – not always tied to insurance policies. With hindisght we can see the snares along that road and that it would stoke up problems for the future if family incomes took a dive, if equity markets [under-pinning insurance yields] stagnated, and if house values declined. But it all seemed perfectly responsible at the time, just as being a long-term renter seems reasonable [if not unavoidable] today. A lot of people were caught out when their endowment failed to redeem their loan. The plight forecast by the FCA for the next two decades is probably more serious because more adverse circumstances come into play but at least the warnings have been given and people might be able to take avoiding action. For many, their children might be off their hands and they can at least downsize or relocate to a lower price area if they have to surrender part of their equity in order to repay the loan..

There was no gambling or irresponsibility in ours or our friends cases who are in the same boat.
Our parents had endowments and got their bonuses, there was no warning that the mortgage might not be paid off at the end of term, the mortgage advisor told us an endowment was best, we had never heard of problems with endowments before and our lack of knowledge of the financial world were the contributing factors.
How many people would really risk losing their property if they knew their mortgage might not be paid off at the end of the term?
If you were warned 25 years ago that you might have to find another £20,000, would you really have thought that in 25 years time that amount wouldn’t be a problem?