Two million homes affected - but how many will beat the claims deadline?

If you think you received the wrong mortgage advice, this could be your last chance to act, says Esther Shaw

Anyone unsure about whether they may have been a victim of the mortgage endowment mis-selling scandal can no longer afford to let a compensation claim languish on their "to do" list.

Many endowment providers have imposed strict deadlines by which complaints must be lodged, in an attempt to draw a line under the whole episode and start rebuilding trust among consumers. By declaring a cut-off point, companies say, they can make a proper assessment of their financial resources and move on.

Endowment mortgages became popular in the 1980s and early 1990s, when borrowers were sold the savings policies with interest-only mortgages on the basis that there would be enough money to repay the original capital loan when the policies matured.

But while people thought they had been given a guarantee, the returns predicted by endowment providers - usually life companies - have failed to materialise due to the recent downturn in the stock market.

Some 2.2 million borrowers now face a shortfall of £7,200 each on average, but on a positive note two-thirds of those eligible to complain have done so.

While policyholders cannot complain about endowments solely on the basis of lower-than-expected returns, the industry acknowledges that, in many cases, the sales process did not meet proper standards.

Many people bought homes under the impression that the endowment would definitely pay off the capital loan - and even give them some cash left over to spend.

It has taken a long time for homeowners to realise that they might have been mis-sold their policy and now, belatedly, the numbers coming forward are rising. Complaints about endowment policies soared by more than a third to 70,000 last year, according to the Financial Ombudsman Service (FOS).

Part of that rise is down to campaigns by consumer groups such as Which?, along with commercial organisations like Endowment Justice that appeal on borrowers' behalf and take a cut of compensation paid out.

But the deadlines, or "time bars", for complaints to be made are now threatening to become a big obstacle for borrowers.

How much time you have depends on when - and if - you received a "red letter". This "reprojection" is sent by the endowment company, notifying you that your policy is running a high risk of not paying out the target amount at the end of the term. If you have received one, it should be clear that you have three years from this point in which to lodge a complaint with the endowment provider.

Hundreds of thousands of red letters were issued throughout 2002, in particular, and so many victims who may be eligible but have yet to claim are running out of time - and may well have done so already.

Part of the problem is that many borrowers feel the process was not made clear to them. Not until last year did the Financial Services Authority rule that insurers must state explicitly that policyholders have three years to claim for compensation on receipt of a warning letter.

Insurers must also now give customers at least six months' notice of any looming cut-off date. As a result, at the beginning of 2005, insurers including Norwich Union, Standard Life, Lloyds TSB and Barclays began writing to policyholders telling them they were setting deadlines for complaints of between six months and a year.

Only a small number of providers - including Prudential and Legal & General - are placing no deadline at all on their customers.

Companies that handle endowment claims on behalf of customers are challenging the legitimacy of many time bars, arguing that the industry didn't make either the claims process or the deadline clear enough.

Many homebuyers may still not realise that they need to act fast. If you think you may have been mis-sold a policy, "the key point is to take action," says Melanie Bien, associate director of broker Savills Private Finance. "If you haven't lodged an endowment mis-selling claim, raise it immediately."

First, complain to your financial adviser or the firm that sold you the policy. Companies have a duty to investigate all complaints promptly and properly, but, if you cannot reach agreement, your next port of call should be the Financial Ombudsman.

Don't be put off by a rejection. The FOS has found evidence of serious shortcomings at some firms in the handling of endowment complaints. Abbey was fined £809,000 earlier this year for wrongly rejecting claims.

Several claims companies are looking into taking legal action against endowment lenders - a move that could have ramifications for the industry.

'WE WERE GIVEN NO ALTERNATIVE'

Janet and Peter Barnett of Cradley Heath in the West Midlands took out an endowment to pay off their mortgage - but it soon became apparent they were likely to have a shortfall of more than £7,000.

When the couple, who are both teachers, bought their Standard Life policy, they were given no alternative repayment option, says Janet, 54.

"It was assumed we would take an endowment and we trusted the adviser to give us the best advice possible."

But the Barnetts were sold a product not due to mature until long after their retirement.

"We'd have been paying for it without having the salary to afford it," Janet adds.

With assistance from Brunel Franklin, an endowment claims company, the Barnetts were awarded compensation of £8,000 - more than making up for the projected shortfall.

"We felt let down by our provider - we understood the policy was 'guaranteed' to pay off our mortgage," says Janet. And she adds: "It's always worth finding out where you stand before it's too late - especially as there might be a cut-off for mis-selling claims.

"We would strongly recommend other people in our situation take action as soon as possible."