The problem of course stems back to the 1980's when commission-driven salesmen recommended these types of mortgages as a means of retiring your debt and leaving you with a surplus - the assumption being that favourable investment conditions would prevail. But when stockmarkets headed south so the shortfalls began to emerge with borrowers informed that they may not have sufficient money to pay off the loan at the end of its term.

The Committee, in one of its more colourful passages, said that many borrowers, especially those on lower incomes, had been left in an advice vacuum and were unsure about what too do next. In fact, just 6% of policyholders had so far sought compensation. Meanwhile, products were badly designed and sales practices, as well as communication with customers, were shoddy.

Firms marketing endowments have already taking a pasting when it comes to fines levied for mis-selling. Indeed, five firms, including LloydsTSB and Royal & Sun Alliance, have been fined a total of £5.2 million. And compensation paid out to borrowers so far has amounted to £670 million.

The committee is now calling on both the City regulator and industry to take immediate action by extending the time limit in which people can make claims. It also wants better advice provided to borrowers facing shortfalls. Another recommendation is that customers of funds closed to new business should be allowed to switch to another firm instead of being moved to a different product by the existing provider.

Response to the report has been swift - the ABI (Association of British Insurers) already set to revise its own code so that consumers are given better information and advice. And for good reason with the report highlighting how not only had insurers failed to warn borrowers of potential shortfalls - until forced to do so by the FSA in 1999 - but also that warnings are still not clear.

11.03.04