§ Mr. EdwardsTo ask the Chancellor of the Exchequer what plans he has to require banks and insurance companies to compensate mortgage borrowers who have been the victims of endowment mis-selling. [123250]
§ Miss Melanie Johnson[holding answer 22 May 2000]: Where mortgage borrowers have been mis-sold an endowment, the regulators have powers to take disciplinary action which can result in firms being directed to make compensation. Mis-selling may arise from unsuitable advice, ie recommending that a borrower plans to repay a mortgage with a product which is either 418W unsuitable for the purpose or unsuitable for the borrower's circumstances. The Government intend that the FSA will have comparable powers under the Financial Services and Markets Bill when enacted.
Recently many endowment providers have contacted their customers to tell them that their endowments may not yield enough to repay associated mortgages. This does not necessarily arise from mis-selling and reflects the reduction in inflation in response to the Government's policy to deliver a stable macroeconomic environment conducive to long term economic growth. When inflation falls, investment returns also reduce so that the cash proceeds of an endowment may be lower than initially expected, eg insufficient to repay an associated mortgage.