Buying a house right now. How safe?

Actually, the focus of an endowment seems much more blurred than that of a repayment plan. With the endowment, you *hope* that by its projected maturity date the fund will have reached or exceeded the debt. With a repayment plan, you *know* it will paid off at end of term. The focus is therefore much sharper.

Statistics?

Well.... in 1990 when I was "selling" them, the assumptions were that they would exceed the loan over the period, and history suggested that this would be the case. I dont think the assumptions were unfair at the time, but things change.

As has been mentioned many times, if savings on interest had been used to reduce the loan, things may have been different.

In message , derek writes

I cashed mine in 2001, and they had earned around 7% since 1988-1992, (5 policies taken over the period).

Oh, *those* statistics.

I should have stressed the early years bit.

I take it thats 7% total not per annum? Mortgage interest would have exceeded 7% per annum for most of that period. Presumably this is a fair indication of how much better off you would have been with a repayment mortgage or reducing your mortgage (Assuming you had a mortgage!) although you have benefited from some element of life insurance.

That's long enough for the charges to be offset by the return on the investment if there are some good investment returns in that time frame, which there were. Future returns are uncertain.

I've a couple of Allied Dunbar 15 year mips still running, they are 7 years old I took them out with the idea of cashing them in at the 10 year stage (no penalties) and AFAIK they are still well below breaking even yet. Of course in the last 7 years we've seen the dot com crash and the post 7-11 fall. :(

OTOH I took an endowment out in 1972 to pay £5250 in 1997. It actually yielded £19,600 :-))

Those days are gone.

DG

In message , derek writes

No. They had earned 7% per annum.

In article , The Blue Max writes

The appeal to most people from the Sixties until quite recently was in the two words everyone seems to have forgotten that went before every mention of endowment mortgage. These were "low cost" .

Almost no-one in my experience calculates how much a loan will cost over the full term, which is why the Treasury is on a loser when it thinks fixed-rate mortgages would soar if a full-term cost figure was attached to every loan offer . Buyers look at how much they can afford each month *now*.

Nor do they consider that low inflation will maintain their debt longer. They look at how much they can afford each month *now*.

Booms happen because buyers go even further and estimate how much they will be able to afford per month next year. If they are feeling optimistic about job/earnings prospects, they will bid up. In the meantime, they fill the gap with a credit card [or go without carpets as I did]. That is why prices go above the average earnings ratio.

If they don't feel confident, even when they can afford loans today they will hold back. That is why prices sometimes stagnate in periods of low interest rates - and soar when they are relatively high.

It is why sentiment is more important than ratios and statistics. Economists struggle to cope with this - which is why they are forever calling doom or boom and getting it wrong.

Back to endowments: these were punted widely to first buyers as a cheap way onto the housing ladder. The fact that early payments were held down only at the expense of bigger payments in future had nil impact because few thought that far forward and, in any case, believed they would be earning more by then.

That's not so bad. I think mine are about 7% as well.

(minus) 7% :(

DG

Not with the original endowment policies (either WP or NP), as the Sum Assured was always equal to (or greater than) the loan.

It was the new fangled "low-cost" ( and its bastard son the low-start) endowments which has led the way to the mis-selling debacle.

Low cost endowments started around 1971, IIRC. By Royal Life, and were meant for staff only.

In article , Doug Ramage writes

Yes, I meant the Seventies. My first loans were low-cost endowments from around 1975. What do I know about the Sixties? I was too drunk to remember them.

"Ronald Raygun" wrote

Which is *precisely* what almost everyone did. Borrow 25,000, pay off about

Only if you have a lot more self discipline than most do.

The assumption at the time was that you would run the thing for 25 years so it didn't really matter when the charges were taken.

Quite so, which is the bit that was not mentioned.

"derek" wrote

My first was taken out in 1986 and was intended to produce 25,500. Returns like yours were so commonplace that the suma ssured was set at 13,000 on the basis that "endowments always massively overperform, so a SA of 13k will produce at least 25k and most likely double that, guv."

"news" wrote

ISTR a graph which showed that house prices tend to rise when interest rates do. Not always - 1989 springs to mind - but frequently enough to shake the usual assumption that the reverse happens.

Mein Gott!

I moved four years later (1976) and took out another policy with the same company (Excess) even that didn't perform just as well as the first.

I did receive bland assurances that any underperforming would be a trivial affair at worst just requiring the payment of a handful of continuing payments equal to the interest at the outset after the term of the mortgage had finished and the proceeds of the policy had reduced the outstanding balance. It didn't happen anyway.

DG

And the funds that you don't get back accrue to someone else.

Whilst funds were growing at 14% per annum it seemed churlish to baulk at paying 2% in charges. But the effect of 2% per annum in charges over 25 years has to bear some relation to 50% of the value of the fund. :-(

But now the funds are not growing at 14%, (and even when they were there was maybe 12% inflation) some now have zero growth or negative growth. Meanwhile the company is still taking its charges and the salesman who made the statements such as in your other post, and mine, is still getting his commission, and the whole caboodle is operating under an regime monitored and agreed by the inland revenue and therefore presumably supported by the government.

DG

Back in 1952, at the tender age of 19, I took out a £100 policy over 15 years, with a sum assured of £100 and a quarterly premium of £1/17/9d. Bonus rates were running at about 2.5%, gradually increasing. Terminal bonuses were just starting, so by 1967 the proceeds were £100 plus reversionary bonuses of £38/6/0d and a terminal bonus of £14/12/0d, a total of £152/18/0d and a return on the net premiums of 3.67%.

On the other hand, I took one out in 1959 as a whole-life, which was converted to endowment in 1978 and matured 15 years later in 1993, and the proceeds were 1093% of the sum assured, 685% being the Terminal Bonus and

Tax relief, age at inception and length of policy term are two significant factors in the end result. Had I had the sense to make the original policy one for 40 years, the return would have been astronomical.

It happens automatically, you don't need discipline. Well, not beyond making the normal monthly payments.

You take a £50k loan at 0.5%pm for 300 months. Two years later you sell, and the accumulated capital hiding in the debt will be £1835. Sure, you could blow it on a holiday, but chances are it'll go into the pot which funds the next purchase.