Legal and General endowment shortfalls rise
The latest announcement from Legal & General reveals a big jump in mortgage endowment shortfalls. A fall in the value of the with profits fund has also led to cut in with profits bonus rates.
The number of Legal & General endowment mortgage holders facing a shortfall has increased dramatically to 64 percent from 28 percent a year ago. There are 12 percent on amber status and 24 percent on green. A £50 per month, 25 year mortgage endowment for a male 29 at the beginning of the plan would be worth £36,414 in March this year compared to £39,613 a year earlier, despite £600 in premiums being paid during the year. One piece or of more positive news was that people taking out an endowment mortgage 25 years ago will get a bonus since a 25 year, £50 a month mortgage endowment maturing on 1 March 2009 will return £2,036 above the target amount of £34,378 at £36,414.
Endowment mortgage holders are amongst many of the 750,000 with profits customers that will see falls in value. Worst affected are with-profits bond holders with an 18 percent fall. In this case a £10,000 Legal & General bond bought in March 1999 has a cash-in value of £11,224 compared with £13,645 a year ago. The declines in with profits are due to a fall of 18 percent in the value of the underlying fund. Legal & General believe that difficult conditions will continue in 2009 making it necessary to reduce most bonus rates but that smoothing gives with profits significant protection in volatile market conditions. Carl Dowthwaite, Finance Director of Legal & General’s With Profits, said “In current market conditions the core features of With Profits mean that it remains a good choice for investors. Our investment strategy puts us in a strong position to benefit from market recovery.”
| Plan term | Surrender value as at 1.3.08 | Total payments since 1.3.08 | Investment value as at 1.3.09 | Return over year |
|---|---|---|---|---|
| 20 year | £22,798 | £600 | £21,463 | -8.4% |
| 25 year | £39,613 | £600 | £36,414 | -9.5% |
Mortgage endowment, male aged 29 at entry, £50 per month
| Date of investment | Cash-in value at 1.3.08 | Cash-in value at 1.3.09 | Return over year |
|---|---|---|---|
| 1.3.99 | £13,645 | £11,224 | -17.7% |
| 1.3.04 | £13,660 | £11,156 | -18.8% |
With Profits Bonds, based on an initial investment of £10,000
