Over 70,000 homeowners in the UK with insurance policies on mortgages will receive smaller endowments this year.
Aviva, one of the largest insurers in the country, has slashed some of the bonuses it paid on its investment funds. This means that the endowments of most customers will not provide sufficient yield to pay off their mortgages.
The pay-outs for investors that have endowment policies with Aviva’s Norwich Union and General Accident, which are due to mature this year, are substantially lower than last year’s.
A 25-year policy invested in General Accident will now generate £31,950 (S$63,429), a decrease of 5.9 percent from last year’s £33,937 (S$67,375).
Meanwhile, policies with the Norwich Union fund declined 7.4 percent; it will now pay £23,465 (S$46,583), compared to last year’s £25,353 (S$50,331).
The data is based on a 25-year endowment mortgage taken out by a 29-year-old man paying £50 (S$99) per month.
Endowment mortgages saw good demand until the 1990s, when it became obvious that more and more policies had failed to settle clients’ mortgages, due to an underperforming stock market.
Aviva has 71,000 endowment policies which will mature this year and it estimates that around 70,290 cannot provide a sufficient amount to cover policyholders’ home loans.
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