top-up mortgage endowment policies

When we recommend or award redress in mortgage endowment complaints, we follow the approaches to redress set out by the FSA in its final version of the Guidance on Mortgage Endowment Complaints, published in May 2001.

This guidance sets out how firms should deal with redress in upheld mortgage endowment complaints, in essence by putting customers back in the position they would have been in if they had been correctly advised. The redress is formulated on the basis that, in the vast majority of cases, customers would have taken out a capital repayment mortgage if they had not been advised to take out a mortgage endowment policy instead.

An issue that firms often raise with us is how redress should be calculated when the customer has taken out a top-up mortgage endowment policy. It is for the FSA, not us, to answer any specific queries about interpretation of the guidance. However, we can explain how we have applied the guidance in cases we have dealt with.

The top-up endowment is usually a separate contract with a separate policy number, sometimes with another product provider. Where the customer has taken out the top-up policy in connection with an increase in the mortgage borrowing, we believe it is essential to perform a separate redress calculation for each policy, taking account of the particular mortgage advance that it relates to.

However, we have sometimes seen firms performing a single calculation in this situation, offsetting ‘gains’ in respect of one policy against ‘losses’ on the other. We do not believe that this is the correct interpretation of the guidance.