Should I sell endowment?

By THIS IS MONEY
Updated:

 

I AM considering surrendering or (probably) selling my Norwich Union unit linked endowment. It relates to the £47,000 mortgage on a flat bought in 1990 and is predicted to fall short by a large margin. The flat has been let while I moved around the country but now I intend to sell it to buy a family home. I understand the pros of keeping the endowment to maturity, but I'd rather use the money towards a deposit. The surrender value is £10,600. What other pros and cons are there? TM, London

David Hollingworth of mortgage brokers London & Country, says: Using the proceeds of your policy can work well in purchasing a family home, and you understand the benefits you might lose by selling or surrendering.

You are wise to consider selling as you can often realise more this way. But double check whether the policy is actually unit-linked or a unitised with-profits policy as this affects your options.

If your policy is unit-linked you will find it much more difficult - or impossible - to sell than a with-profits endowment, as it is the bonuses that the second hand buyer is interested in.

However, it is still worth establishing whether this is an option. Newcastle Building Society has just launched a new service to help people sell unwanted endowments. They will pass your policy details on to 18 companies specialising in traded endowments. They will come up with offers which you can compare to the surrender value. This service is available by calling on 0191 244 2020.

One final option is using your policy to obtain a loan to act as the deposit for your proposed house purchase. Bank of Scotland, Scottish Widows Bank and Newcastle Building Society, offer this facility although not all will lend against unit-linked policies. Only Bank of Scotland will lend up to 70% of the surrender value on some unit-linked policies.

The advantage of this is that you retain your life cover and terminal bonus but you will have to repay interest on the loan.

Finally, remember to look at life cover when you arrange your mortgage for the family home you are looking to buy.

Most watched Money videos