Breaking out from the mortgage cage

Here is a crumb of comfort for the many thousands of people who have been told that their endowments are not on track to repay their mortgage loans: at least you know there's a problem.

If you have an interest-only mortgage backed by another sort of investment - such as a Pep, Isa or personal pension - you may be blissfully unaware that your situation could be equally bleak. But unlike people with endowments, who are all being written to, you will find out whether you face a potential shortfall only if you take steps to check for yourself.

So what, precisely, am I supposed to check?
That you are paying enough into your chosen investment to ensure having a big enough lump sum to pay off your mortgage.

But they worked all that out when the mortgage started, so I can't see that there's a problem.
When was that?

Ten years ago.
I'd get some up-to-date calculations done.

Why?
Two reasons: first, before 1995, figures illustrating potential payouts didn't have to include real charges; second, they were allowed to assume much higher growth rates than they are now. Unless you've been advised to increase savings, or your investment is worth what they said it would be, you're probably looking at a shortfall. What kind of investment are you using to back your mortgage?

A personal pension plan.
Do you get a lot of marriage proposals?

What's that got to do with anything?
Pension mortgages are only suitable for the seriously wealthy.

I'm not self-employed, I'm not rich and if you must know, I'm finding the £150 a month for my pension plan a bit of a struggle.
Does it help to know that with tax relief your £150 monthly contribution is worth nearly £200?

Not much.
How big is your mortgage?

£50,000.
So you'll need your pension fund to be worth £200,000 when you retire.

But that's four times the size of my loan.
It has to be because the Inland Revenue limits the amount of cash you can take from your pension to a quarter of the fund. The rest must buy an annuity. Do you know what your pension fund is currently worth?

Just under £40,000.
Well, the good news is that if you carry on putting £200 a month into your pension for the next 15 years and the fund continues to grow by 9 per cent a year, you won't be homeless in your old age.

And the bad news?
Given that 9 per cent is now the highest rate of growth pension companies can use when projecting future fund values, assuming that your fund will grow at that rate after charges smacks of wild optimism.

So I may not be able to pay off my mortgage. What should I do?
One option would be to convert your mortgage to a repayment for the remainder of the term. But your mortgage payment would have to go up. That would mean reducing what you pay into your pension.

Any other suggestions?
You could complain that you were given bad advice, on the grounds that a pension mortgage is unsuitable for someone who may lose their job or who could go to work for an employer who runs an occupational pension scheme. You would have an even stronger case if using a part of your pension to repay the mortgage means paying interest for longer than 25 years, or having to take your pension at an unsuitably young age. You could also complain if you were persuaded to surrender an endowment policy for a personal pension plan.

How do I go about it?
Complain to the company that sold you the pension and advised you to link it to your mortgage. If you reach deadlock, but want to take a complain further, phone the FSA Consumer Helpline (0845 606 1234) for advice on how to do this. Alternatively, ask the FSA Leafletline (0800 917 3311) for a copy of the FSA Guide to Making a Complaint.