Mortgage endowment complaints hit record levels

The number of mortgage endowment complaints received by the Financial Ombudsman Service (FOS) has hit record levels, rising by a third in the year to March 31.

The number of complaints reached 70,000. This was 34% up on the previous year's figure and made up almost two-thirds (63%) of all complaints received by the ombudsman service.

Some 13,000 complaints were dealt with on the consumer's first contact with the ombudsman, which tackles disputes that consumers and financial services companies are unable to resolve between themselves. These complaints were resolved by an explanation of the deal being offered a consumer by its endowment provider.

The ombudsman is now receiving 1,300 new mortgage endowment complaints every week, compared to 300 a week just three years ago. On an average day it receives 260 new mortgage endowment complaints.

The ombudsman put the increase in complaints down to changes in the reprojection letters sent to consumers outlining how much their investment should return. These now give a deadline for consumers to respond if their endowment is failing.

"There are seven million policies out there and since June 1 2004 the reprojection letters sent out to policyholders have been putting in the deadline for complaints - usually six months from the date of the letter," said the ombudsman's spokeswoman Emma Parker.

Ms Parker said that another factor in the increase in complaints levels was the continued poor performance of endowments. "The reprojection letters are not getting better," she said. "Some are painting a worse picture than they were."

The ombudsman said that about 12% of endowment claims are now referred by endowment claims management services, companies which represent customers on a "no win, no fee" basis.

It said the outcome of these cases was no different to those in which a consumer had approached the service direct, and reminded consumers that they should not need the help of a third-party claims company to bring a complaint to the ombudsman.

Earlier this year, insurer Prudential said it would no longer deal with these companies and would only settle claims directly with its customers.

Walter Merricks, chief ombudsman for the Financial Ombudsman Service, said that the FOS had dealt with a record number of mortgage endowment disputes last year. Mr Merricks said that the number received this year could go up as a result of the new reprojection letters, several million of which will be sent to consumers in 2005.

"Most of these letters will warn of likely mortgage shortfalls and many will give, for the first time, an explicit deadline by which any complaint must have been lodged," he said. "These letters could result in ... sudden bulges in complaint volumes.

In the year covered by the report, the ombudsman received 614,148 enquiries from consumers and stepped in to investigate 110,000 new disputes - a 13% increase on the previous year.

It resolved 90,908 cases in the 2004/05 financial year, 55% informally by mediation, 38% by recommended settlements, and 7% by formal ombudsman decisions. A total of 48,869 mortgage endowment complaints were settled.

Complaints about stocks and shares Isas were down by a half, while cash Isa complaints attract three times as many complaints as in 2003/04.

The report revealed 85% of financial firms had no disputes referred to the ombudsman service; but 10 of the UK's largest financial services providers together accounted for over half of all new complaints.