Mortgage endowment prospects?
|Borrowing | Mortgage
Asked by TinyTears, submitted
25 August 2010.
Our Standard Life Endowment Mortgage, which we took out in Nov 1987, is not going to make its promised investment pot and like many other missold policy holders, we are now facing the inevitable financial worry about finding £25,000 to pay off the shortfall. Fortunately for us we have now put £25,000 to one side to pay off this shortfall.
Do you think Standard Life investments are going to have any reasonable growth for our final 2012 endowment payout?
Answered by Justin on 27 August 2010
Your endowment invests in Standard Life’s with-profits fund. The idea behind with-profits is to invest in a mix of stockmarkets, gilts/corporate bonds (called ‘fixed interest’) and property then hold back some profits in the good times with a view to using them to prop up returns during the bad times – so you receive a consistent annual return (called a ‘bonus’). If there’s any held back profit in your pot at maturity then this is paid out as a ‘final or ‘terminal’ bonus.
Your 2012 payout will depend on the annual (also called ‘reversionary’) bonuses until then and the final bonus on maturity. These, in turn, depend on the performance of the underlying with-profits fund (especially the final bonus).
The annual 2010 bonus on Standard Life traditional with-profits fund (likely to be your mortgage endowment invests in) is 0.25% on the sum assured and 0.35% on bonuses already added. So don’t get excited at the prospect of making money via annual bonuses.
The final bonus is much harder to predict as it depends on how much, if any, held back profit is earmarked for you as well as underlying fund performance between now and maturity.
I’d start by asking Standard Life for a current surrender value and projected maturity value. This will show how much your policy is worth now and how much it might be worth at maturity based on an assumed underlying fund growth rate. Comparing the two will give you some idea as to how fund returns affect your final payout (although bear in mind the surrender value might include an early redemption penalty).
Will the fund grow? It returned 3.8% over the first half of this year but it’s very difficult to guess the future, as markets are so unpredictable these days. On the bright side around 59% of the fund is currently invested in fixed interest and cash, with 29% in stockmarkets and 12% in property, reducing the risk of losing money over the next couple of years - as the bulk of the fund is held at the safer end of the investment scale.
Fingers crossed markets oblige and you make more than expected from the endowment.
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