It has been revealed that almost all endowment policies will not actually cover the cost of repaying the mortgage at the end of the term.

More than three million homeowners have received the shocking and worrying news that their endowment policies will probably not cover the balance of their mortgage loan when the time comes to pay it off. In fact, the situation is so bad that some insurance companies only have one in every one hundred endowment policies that will pay off the mortgage loan that it is meant to cover.

According to reports 98 percent of endowment policies are very likely to fail to cover the loan amount when the time comes, and this equates to around 735,000 policies. A further 1 percent of endowment policies are in a dangerous position and could soon fall into the category of being unlikely to cover the loan amount. That means that just 1 percent of policies are actually on target, equating to just 7500 policies.

One homeowner explained how just a year ago she was told that the endowment that she had would pay out more than enough to cover her mortgage.

However, earlier this year she had another letter saying that the on target payout had fallen by a whopping £13,000, leaving her around £12,000 short for the payoff of the balance. She said: ‘How can we lose nearly £13,000 in just seven months? ‘Why were Prudential’s predictions so far out? We have been through bad times in the stock market before, but I can’t believe this has fallen so quickly.’

An official from Standard Life said: ‘Many policies that were on target have matured, but the major factor has been the turbulent market conditions we have experienced in the past 18 months or so, for example, a drop of over 30% in the FTSE All share Index in 2008 alone. These have had an impact on plan values and, in turn, on the number of policies not on target.’

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