Endowment Shortfall: What to Do If Your Policy Falls Short
An endowment shortfall happens when your endowment policy is projected to pay out less than the interest-only mortgage it was meant to repay. If you have one, it helps to check your latest projection, plan how to cover the gap and consider whether you have grounds for a mis-selling complaint. Acting early usually leaves more options.
Many endowment mortgages were taken out in the 1980s and 1990s, so a shortfall often comes to light in later life.
This guide is general information, not financial advice.
What an endowment shortfall is
An endowment mortgage combines an interest-only loan with an investment-linked life insurance policy. You pay interest to the lender and premiums into the policy, which is meant to grow enough to repay the loan at the end of the term.
Many were sold on growth assumptions that later proved optimistic. When returns fell short, many policies were projected to pay out less than the mortgage balance: the endowment shortfall. Whatever the policy pays, you still owe the full mortgage.
Checking your policy projections
Providers send regular letters projecting what the policy might pay at maturity. Historically, these reviews were colour-coded:
- Green: the policy was on track to repay the mortgage.
- Amber: there was a significant risk of a shortfall.
- Red: there was a high risk of a shortfall.
If you are unsure where you stand, you can ask your provider for an up-to-date projection and copies of past letters. Keep old letters, as they can matter for a complaint.
Options to cover an endowment shortfall
Each option has trade-offs, and several can be combined:
- Overpaying the mortgage now. Many lenders allow some overpayments each year without a charge, often up to 10% of the balance, which reduces the gap before the end date.
- Switching part of the loan to repayment. Monthly payments rise, but the balance falls. See switching interest-only to repayment.
- Extending the term, if your lender agrees, to give more time to save. See interest-only term extensions.
- Using savings or a pension lump sum. Taking pension money has tax and income consequences; see pension options at 55.
- Downsizing, which may clear the gap from the sale proceeds but means moving. See downsizing explained.
- A retirement interest-only (RIO) mortgage, where you pay interest monthly and the loan is usually repaid when the home is sold after you die or move into long-term care. Our guide to retirement interest-only mortgages explains how they work.
- Equity release for homeowners aged 55+, which usually has no monthly payments, but interest builds up and reduces what you leave behind. See our equity release guide.
Our guide to options when an interest-only mortgage is ending covers these routes in more detail.
Endowment mis-selling complaints and time limits
You may have grounds for a complaint if, for example:
- you were not told the payout depended on investment performance and was not guaranteed
- the policy was set to run beyond your planned retirement without checking you could keep paying
- your circumstances and attitude to risk were not properly assessed
You can complain to the firm that sold the policy free of charge. If you are unhappy with its final response, or it has not responded within eight weeks, you can take the complaint to the Financial Ombudsman Service, also free.
Time limits apply to complaints. For endowments, they are often linked to when you received a letter warning of a high risk of shortfall, and they may not apply if the firm did not send a reminder of the deadline. The Ombudsman can confirm whether your complaint is in time.
A complaint may or may not succeed, so it helps to plan how to repay the shortfall at the same time rather than waiting for an outcome.
Getting help early
For the complaint, the Financial Ombudsman Service and MoneyHelper explain the process for free. For repaying the shortfall, an FCA-regulated mortgage adviser can look at your whole situation, including later-life options. We do not provide financial advice.
Not sure which option fits your circumstances?
Written and reviewed by the Later Life editorial team. Last updated .
Frequently asked questions
What happens if my endowment does not cover my mortgage when it ends?
You still owe the lender the difference between what the policy pays out and your mortgage balance. The lender will expect it to be repaid by the end date. Contacting your lender early gives more time to arrange a plan, such as overpaying, switching part of the loan to repayment or using savings, and some lenders may discuss extending the term.
Should I cash in my endowment policy early?
That depends on your circumstances, so it is worth getting guidance first. Surrendering early may give you less than keeping the policy to maturity, and you may lose any life cover it includes. Selling the policy or making it paid-up are sometimes alternatives. Your provider can give a current surrender value to compare with the projected maturity value.
Can I still complain about endowment mis-selling?
Possibly. It depends on how the policy was sold and on time limits, which are often linked to when you received a letter warning of a high risk of shortfall. You can complain to the firm that sold the policy for free, then to the Financial Ombudsman Service if you are unhappy with the response. The Ombudsman can say whether your complaint is in time.
Do I need a claims management company to complain?
No. You can complain directly to the firm that sold the policy, and then to the Financial Ombudsman Service, without paying anything. Claims management companies can handle the process for you, but they usually take a share of any compensation.
Could a retirement interest-only mortgage cover an endowment shortfall?
For some homeowners it may. A retirement interest-only (RIO) mortgage lets you pay interest monthly, with the loan usually repaid when the home is sold after you die or move into long-term care. You need to pass age and affordability checks. Our guide to retirement interest-only mortgages explains the benefits and drawbacks.