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Endowment Mortgages: Not Living up to the Historic Hype

DATE: 23.06.2011

 

As banks continue to reap criticism for the consequences of their boom time lending sprees, the negative implications of the banks’ practice of promoting endowment mortgages, a practice which predated the boom, are only now coming to light. In May this year, the Circuit Court awarded two pensioners €16,000 damages against Bank of Ireland, for the latter’s negligent misrepresentation in its recommendation of an endowment mortgage.

Though the Bank claimed that risks associated with such mortgages were explained to the Plaintiffs by telephone, the Court was unimpressed with the fact that no such warning had been set out in writing. No documentation highlighted the risks, including the potential risk to one’s home, and the Court went so far as to conclude that it suggested an absence of risk. Accordingly, the Court agreed with the Plaintiffs’ counsel that the advice given by the Bank had been negligent.

While the Bank has indicated its intention to appeal the decision, focus is now on the affect this decision could have on hundreds of others with endowment mortgages. Between 1989 and 1992, endowment mortgages accounted for more than a third of all Irish approved homeloans. Typical mortgages from this period with a twenty year term are now set to mature which indicates a likelihood that many similar cases will follow suit. The UK has faced the same problem over the last decade where, by 2007, over 1.8 million complaints had been made by endowment mortgage holders to the Financial Ombudsman Service, and compensation in excess of £2.7 billion has been paid.

Bríd Munnelly

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