Inquiry into endowment mortgages

A Scotland Yard investigation into the mis-selling of endowment mortgages could lead to prosecutions of insurance companies and their directors.

A police official confirmed yesterday that Scotland Yard's fraud squad had been investigating the sales scandal for a couple of months.

Detectives are believed to have interviewed former sales staff working for several leading insurers which provide endowment policies that back the mortgage repayments. They are believed to be concentrating on sales techniques used to persuade housebuyers to opt for an endowment when a different form of mortgage repayment might have been more appropriate.

Police are looking for evidence that insurance firms deliberately encouraged such inappropriate sales.

Scotland Yard would not comment on the source or nature of the complaint which sparked the inquiry or say how long it would be before any files were passed to the crown prosecution service for a decision on whether or not to bring charges.

The endowment scandal erupted in the spring when the financial services watchdog warned of the huge losses facing the 30% of people who abandon policies only a few years after taking them out.

The personal investment authority said a policy that was traded in after five years could provide as little as £1,400 from payments of £3,600. The shortfall is explained by the heavy sales commission which is taken out of the early payments - and which explains the enthusiasm for selling these products.

Despite official acceptance for several years that endowments are suitable for only a small number of housebuyers, a third of all mortgages are backed by such policies.

The situation has become worse this year after insurers warned policyholders that they might have to increase payments to compensate for lower investment returns.

The financial services authority has put the endowment business under special scrutiny, but this has yet to turn into the kind of full-scale investigation which followed the pensions mis-selling scandal in the early 1990s when police investigated the pensions industry but failed to find enough evidence to justify bringing charges.