Singing Pig

I've come across a couple who wish to sell and rent back. They have an endowment mortgage which I've not come across before. If I purchase the property from them, is this just treated like normal mortgage ie. my mortgage will pay off their mortgage? Or are there other issues wtih endowment mortgages?

klee:

I've come across a couple who wish to sell and rent back. They have an endowment mortgage which I've not come across before. If I purchase the property from them, is this just treated like normal mortgage ie. my mortgage will pay off their mortgage? Or are there other issues wtih endowment mortgages?

I suggest you enter "endowment mortgage" in Google (.co.uk) - I tried it and there are several sites which explain the concept!

Must say it makes me feel old, when I bought my first property, endowment mortgages were popular (seemed like a good idea at the time!!), so I guess everybody knew what they were then. How the world changes! 

 

Yes I understand what they are but that wasn't my question!

It’s an interest only mortgage Ken so usually you just pay of the capital and they can keep the endowment running as a savings plan if they like.

 

If it has less than 5 years to run they definitely want to keep it going.

 

Tell them NOT to surrender it but to sell it as they will get more.

 

Occasionally they are linked to the mortgage such as a pension based endowment and it may need to be sold/closed but that’s very rare. If it’s combined with an insurance policy then they may be better off selling it as they are paying for nothing.

 

Also if its a with profits these give a big lump sum in the last year or two, a non-profits endowment isn’t usually worth keeping.

 

All in all they should seek financial advice.

 

Lisa

 

P.S. I made an offer to buy an endowment from one of my sellers once – I offered 50p in the pound – it’s perfectly legal to do this so worth you looking into this too.

 

 

 

I've had a couple of endowments in the past, they were terrible investments - a good chunk of what you pay goes to the provider, meaning that neither of mine would have matured to the expected amount. In the 80s and early 90s people thought these were a good idea and I didn't know any better. I would have been better off putting the same amount in an ordinary building society account. Both of mine were unit linked endowments, which means you can't sell them as the values are directly linked to the stock market. They have a face value at any time and that is what they are worth. They can however be cashed in easily at any time, provided they are no longer linked to a mortgage.

It is fairly unlikely that a unit linked endowment would be worth keeping as an investment, although it would be sensible to wait until the stock market is high again before cashing it in. It can be made paid-up until then. I was lucky with one of mine - I sold just before the market dipped. The other is paid-up and waiting for a good time to sell.

You could potentially use the value of an endowment as a negotiating tool in a BMV deal. They could sell or cash-in the policy to raise funds. Beware of giving them financial advice on this though, you could get into trouble if you are not a FI.

The other thing to bear in mind is that they are not just an investment, they are also a life insurance policy, although the value of this may be fairly insignificant.