Further blow to home loan scheme

NatWest will quit selling endowments to home buyers next week after admitting that demand for the controversial product has almost completely dried up.

The bank, one of the top 10 mortgage lenders in Britain, will stop selling endowments from Friday and offer plans based on individual savings accounts instead. A spokesman said that in recent months only 5% of customers have been taking out endowments.

"We are now only recommending endowment mortgages in a handful of cases, so it's simply not viable to maintain all of the systems and processes necessary to support the product," the spokesman said

NatWest's exit follows similar moves by Nationwide building society and Pearl Assurance in December.

Last month the financial services authority revealed that 60% of the 10m endowment policies in force are not on track to produce enough cash to repay mortgages, and that making up the shortfall will cost the typical homebuyer an extra £500 a year.

But the regulator stepped back from instigating a full-scale inquiry and says that home buyers who have been missold policies must take up their cases with the insurance company or the FSA ombudsman.

NatWest has 38,000 customers who bought policies through NatWest Life, set up in 1993. Before that NatWest was an independent adviser, so its pre-1993 mortgage customers have products with a wide range of life insurers.

It said that, while its 10-year plans were on track to repay mortgages, borrowers with longer-term plans would almost certainly be facing requests to top up their policies to meet new projected growth guidelines of 6% rather than the 8.5% level set when most of the policies were sold.