Up to 4 million at risk' from endowment trap

Up to 4 million homeowners may be at risk of having their endowment mortgage policies pay out too little to repay their loans, according to figures circulating in the investment industry.

About 40 per cent of the estimated 10 million people with endowments are said to be receiving letters from insurers warning of shortfalls.

The Association of British Insurers described the figures as 'speculative'. Nevertheless, Jane Whittles, the industry Ombudsman dealing with endowment complaints, is now so concerned that she is drafting guidance to companies about how to deal with compensation claims.

The aim is to force the firms to speed up the compensation procedure.

Whittle will tell companies the sort of cases in which they will be expected to pay com pensation, rather than pass them virtually automatically to her.

The Financial Ombudsman Service will ask firms to compare an endowment's performance with that of a repayment mortgage over the same period, and pay the customer the difference.

Several types of borrower are likely to be eligible, including those with no knowledge of the stock market, people sold an endowment close to retirement and purchasers of council homes under the right-to-buy scheme

However, compensation will not be automatic. A forecast shortfall alone will not be grounds for compensation unless the policyholder was misled.

Homeowners concerned about their endowments should continue to complain directly to whoever sold it.