Roland,
This is exactly the case. Back in the late 1980s and early 1990s with interest rates of high double digits,assumed growth rates were much higher than actually turned out to be the case and low contributions were assumed to be sufficient to accumulate over 20 or 25 years.
Obviously the interest payments to the lender were also higher than now. Remember that the total payments for an endowment mortgage are the sum of two parts: a payment to lender and payment to an Assurance Company. These cannot be viewed in isolation although these contracts were rarely very well explained.
What the Assurance Company is implying is that any borrower had the benefit of the fall in interest rates and consequently could (should) have saved the difference to make up any shortfall on the payout.
This is absolutely the case and of course where a borrower had been advised to do this for the last 18 years, they would have managed the "problem" away.
The reality is that sadly, many people who bought (were sold) an endowment mortgage have not heard a squeak from the original "adviser" who sold them the policy, and no such advice has ever been forthcoming.
That said there is clearly a balance of responsibilities here.
Borrowers may feel that Mortgage Lenders could have pointed out to them that reductions in interest payments should have been used to cover any possible shortfall building in their endowment policy. But of course, in many cases, the policy wasn't sold by the Lender so it isn't their legal responsibility (although perhaps they were morally bound to offer more help than many did).
The Endowment issue clearly won't go away until the majority of the policies sold have matured which is unlikely to be much before 2020 and anyone with an existing policy needs to carefully consider their position and weigh up their options.
I have had cases where we have been able to select against the Assurance Company and apply for a surrender value which is valid for a period of time prior to maturity and then to apply for the higher of the surrender value and maturity value.
This may sound counter-intuitive but with persistent cuts in Terminal Bonus payments on With Profits Policies, it is perfectly possible that a surrender value could be higher than an maturity value.
What to do with an existing endowment policy is an extremely complex area requiring experience and understanding of the second-hand market as well as the workings of the various contracts on the market. Professional advice should always be sought before making any decisions regarding an existing policy.
I recently read an article at the weekend where people had successfully brought this issue to the ombudsman but we have since been told that we need to talk to the bank before approaching the ombudsman.