The worst policy ever sold?

The traffic lights are turning redder than ever for Britain's army of endowment mortgage holders.

Norwich Union admitted this week that 75% of its endowment plan customers risked failing to hit home loan repayment targets. And Zurich Financial - the umbrella brand for Allied Dun bar and Eagle Star - revealed that 79% of its policies could fall short.

Most of the 10.7m endowment mortgage holders were sold plans by commission- chasing advisers during the property price boom in the late 80s and early 90s.

But while most firms stopped endowment sales from the mid-90s, a few car ried on selling. This was what happened to Enfield resident Peter Morrison. The (then) new requirement from regulator Financial Services Authority to work out potential future benefits using lower stock market growth rates didn't stop the salesman.

Together with his wife Donna, Mr Morrison ended up with a policy that needed an ultra-high growth rate if it was to pay off his loan.

Three years ago, Mr Morrison, now 49, needed a £120,000 mortgage. He already had endowments to cover £70,000 of borrowing, and needed financing for the other £50,000.

But he was sold an Allied Dunbar endowment policy which was set to produce a shortfall no matter what colour the traffic lights. It could also cost him around £10,000 more than a repayment mortgage - even if it hits the home loan target.

A red light on an endowment update means the policy needs 8% or more growth each year to succeed; an amber light needs a less demanding 6% to 8%, while a policy which will work if the annual increases are below 6% has a green light.

The projected maturity values on his plan, supposed to produce £50,211, showed that at 4% annual growth it would produce £37,800; at 6%, it would end up with £42,300 and even at 8% - the most optimistic rate allowed by the FSA watchdog - he could look forward to just £47,800, equal to a shortfall of £2,411.

But Mr Morrison did not even want an endowment.

"I saw an advert in a mortgage magazine for a firm of brokers in Rugby. I was attracted by an offer of low legal and other costs," he says. The broker was Central Mortgage and Financial Services, owned by Wade J. Curzon.

"We already had £70,000 in endowments from the 80s and I was worried about them due to the adverse press. And neither of us really needed life insurance, as we were well covered by our workplace schemes," he says.

But that did not stop Mr Curzon. Wearing a second hat as an Allied Dunbar "financial planning consultant", he persuaded Mr Morrison to sign up for a new endowment.

"He decided we both needed a lot of insurance, including private medical care and long-term care. But what swung it was he said an endowment was cheaper than a repayment and if I agreed, he would pay my legal fees."

It was not really cheaper. On the £50,000 endowment mortgage, Mr Morrison had to pay £285 a month for the Allied Dunbar plan and £141 a month for his 3.49% discounted Staffordshire building society loan - £426 in all.

A repayment loan would have cost £425. But in May 2001, Allied Dunbar admitted that the real endowment cost should have been £311.

At the same time, the discount ended and Mr Morrison had to pay 5.74%. Now the interest rose to £239, giving a new total of £550. But the repayment loan was now £470. The endowment was costing about £80 a month more.

Over the remaining life of the loan, Mr Morrison could expect to pay almost £10,000 more and end up with a shortfall of up to £8,000.

"He never told me any of this. He never sent me a repayment loan schedule," says Mr Morrison. "There is some insurance but this is too much."

The small print shows why Mr Curzon was so eager to sell the endowment. As a mortgage broker, he would receive "less than £250" (usually £100) from the Staffordshire.

But by selling the endowment, Curzon would receive £1,975 in the first year and a further £1,272 over the life of the policy - a £3,247 total.

Jobs & Money was unable to contact Mr Curzon. He is no longer an Allied Dunbar salesperson. And his Central Mortgage firm has moved from Rugby to Llandrindod Wells, says the Mortgage Code Compliance Board. But the phone has been disconnected.

One former Allied Dunbar person says this is one of the worst cases he has ever seen.

Allied Dunbar says: "We are treating this as a formal complaint and will investigate this as a matter of urgency."

Mr Morrison says: "I want compensation so I am back where I should have been with a repayment loan."